MEPs last night started discussing the overhaul of credit-ratings agency regulation and supervision in preparation for the European Commission’s legislative proposal on the subject.

A report written by Wolf Klinz, a German Liberal MEP, calls for the creation of a fully independent European Credit Rating Foundation to compete with the three global agencies that currently dominate the sector (Moody’s, Fitch and Standard & Poor’s).

The report was discussed at the economic affairs committee meeting, during which Klinz suggested that the European Central Bank (ECB) should be charged with rating public debt and bonds instead of credit-ratings agencies.

The committee’s discussions are a prelude to the European Parliament adopting a position on the issue. The Commission is expected to publish legislative proposals for a revamp of credit-ratings agencies by the summer.

The Parliament has a joint say with member states on the shape of the legislation.

The report suggests that the European Credit Rating Foundation would receive financial support for the first three years from financial institutions, investment funds, insurance companies and credit-ratings agencies, after which it would be self-sufficient.

The paper calls for credit-ratings agencies to carry out annual reviews of previous credit ratings and suggests these reviews would be controlled by the European Securities and Markets Authority (ESMA).

Klinz’s report said that rating agencies “played a significant role in the build-up of the financial crisis due to faulty ratings given to structured finance instruments”.

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