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Capital Markets Law Journal Advance Access originally published online on August 21, 2009
Capital Markets Law Journal 2009 4(4):477-500; doi:10.1093/cmlj/kmp034
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© The Author (2009). Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

Regulating Credit Rating Agencies: the new US and EU law—important steps or much ado about nothing?

Thomas M. J. Möllers*
* Professor, University of Augsburg. Chair for Civil Law, Economic Law, European Law, Conflicts of Law and Comparative Law; Jean-Monnet-Chair for Corporate, Capital Market & Competition Law. thomas.moellers@jura.uni-augsburg.de. The cited documents are available at: http://www.thomas-moellers.de. This article is based on the material of three presentations given at the Law Faculties of the George Washington, Chicago Kent, Pepperdine University, University of Johannesburg and Ankara University. I would like to thank the colleagues of these faculties for their helpful comments and critique.

The first 150 words of the full text of this article appear below.


Key points

  • This article discusses the different causes of the current financial crisis, in particular the structured finance products (toxic papers), which because of their good ratings, were purchased by many banks worldwide.
  • Meanwhile, market participants are no longer allowed to set their own standards, rather the financial markets are being regulated more strongly.
  • The most recent regulatory measures concerning ratings agencies are illustrative of how the American and European legislators attempt to achieve effective control with instruments of the capital market. The results, however, are mixed.

 


   1. Instruments of capital market law and the financial crisis
 
Background information on the financial crisis
The global economy is currently experiencing its worst crisis since the 1930s. In recent years, capital markets were highly praised for their efficiency—thanks to modern technology it takes but a few mouse clicks to allocate investment capital where it can work most efficiently.1 The harmonization of capital market law thus promised great growth.2 Unfortunately, something must have gone wrong.

The financial crisis has . . . [Full Text of this Article]

Rating agencies as a structural problem?
Free flow of information, avoiding conflicts of interest and supervision: the core regulatory instruments of capital markets
The new legal proposals in the USA and the EU

   2. Conflicts of interest
 
Reducing conflicts of interest
Incompatibility of advisory services and rating
Rotation of analysts and revenue barrier
Comments
Missing specification
Duty of rotation, suspension from duty and market entry barriers
De Lege Ferenda: increasing unsolicited rating

   3. Duties to disclose
 
The essential element of any rating: likelihood of default
The proposals of the IOSCO, the SEC and the European Commission
A U-turn and successful lobbying
The complexity of structured finance instruments—toxic papers
Legal implications
The necessity of a differentiation between ordinary and structured finance products
Further specification and differentiated classification (AAAsF)
Further information obligations
Web page versus central data bases
Information without value and information overkill

   4. Regulating the rating agencies
 
The current state of regulation
Differences between the USA and the EU—the missing European supervisory authority

   5. Summary and outlook
 

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