BRUSSELS--The European Parliament Tuesday voted through draft legislation to tighten rules on credit rating agencies which have come under heavy criticism from several European politicians for their assessments and actions in the region during the financial crisis.
The new rules, approved by the Economic and Monetary Committee aim to regulate sovereign ratings, reduce investor reliance on ratings and restrict the scope for conflicts of interest.
The European Council voted through its version of legislation last month. As both the parliament and the European Council have now agreed a negotiating position on the rules, three-way discussions can begin with the European Commission on the final wording of the legislation.
This is the third round of regulation ratings agencies have faced in Europe since 2008. Pressure to tighten control of them has increased significantly in recent years after ratings companies generally failed to recognize the risks involved with securitized subprime mortgage products in the U.S. More recently, they have come under heavy criticism by several European politicians for their assessments and actions in the region during the financial crisis.
Credit ratings have grown to play an important role in how investors assess the likelihood of a company or country to pay back its debt. But the financial systems reliance on the big three ratings agencies--Standard and Poor's, Moody's and Fitch--has been criticized throughout the crisis and is said to pose a major risk to the system.
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