On 16 January 2013, the European Parliament agreed to the introduction of stricter rules for rating agencies. The new rules are aimed at addressing a number of problems including over-reliance on ratings by financial market participants and conflicts of interests caused by 'the issuer pays' remuneration model .
As part of the more stringent regime, unsolicited ratings of government debt may not be published more frequently than three times a year. In addition, agencies may only issue their ratings after close of business or at least one hour before the start of trading on European exchanges. Rating agencies may not publish ratings of their major shareholders. And it will become easier to hold agencies liable for wilful violations or gross negligence. Rating agency clients will have to request ratings from at least two rating agencies. And finally, by 2020 European regulation must cease referring directly to external ratings and financial undertakings may no longer be required to automatically sell assets if they receive an unfavourable rating.
Fines and periodic penalty payments
The ESMA may impose fines or periodic penalty payments on a rating agency that has intentionally or negligently violated the Rating Agencies Regulation. The European Commission has published delegated rules to be followed by the ESMA in imposing such fines – see Regulation (EU) No. 946/2012).
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