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23/1/2019  
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Financial inclusion

Holding back rating agencies


In the slow progress of the financial governance of the European Union, the European supervisory authority (centralized) and securities markets (ESMA) have recently led many oligopoly poor practices, amogst all, the three major international rating agencies (Moody ´s, Fitch and Standard & Poor´s)
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We should remember that after several years (since the  the Larosière Group results, devastating in terms of the irregularities, especially in it complex structured finance products and its lack of traceability), the Commission and the European Parliament have developed greater and stricter regulations and control over these entities which have harmed our economies, specifically in relation to:  ndependence and interest conflicts, transparency and diligence management of information, territoriality, and inappropriate qualification analysis .

In the first case, it is well known that the model "issuer pays" generates conflicts of interest. Above all a basic rule is to treat well the good customers, however these agencies have as shareholders the big asset managers (Hearst, Buffet etc. . ). Notwithstanding, it is well known his great ability to influence risk analysts when it comes to evaluating his own financial products.

Regarding to processing data, it is essential to improve transparency and ensure a full and diligent access to information. This is one of the basis the rating agencies should take into consideration, as well as the supervisors.

In relation to the territorial aspects, it is essential that the European subsidiaries agencies headquartered outside the European Union are subject to the same rules of supervision. The G-20 should agree an international code of conduct and all the agencies should respect it, setting  severe penalties against any defaults. 

A final point that has revealed the inspection work conducted by the ESMA refers to the poor or inadequate qualifications of those developing the ratings, which further reduces its reliability. In fact, they have found significant methodological flaws in sensitive and important assessment of the sovereign debt issue.

From the European EESC we have already spoken in several occasions about these issues, supporting centralized monitoring and the promotion of new players . More specifically, we have focused on the creation of a European agency for assessing sovereign debt, as well as encouraging a bigger consumer participation in the tasks of monitoring and centralizing the control, which fortunately the ESMA has already begun.

Carlos Trias Pintó
Member of t he EESC and Director of ASGECO

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