Credit rating agencies should have their market share capped in the European Union to promote more competition in a sector dominated by the "Big Three", a report from an EU member of parliament said. The big rating agencies such as Moody's Investors Service , Standard & Poor's and Fitch Ratings should not be allowed to have more than a quarter of the market for ratings in banks, insurers, companies or structured finance products, the report said.
"To enhance competition among credit rating agencies, for each of the following rating areas, a threshold should be established beyond which credit rating agencies would be prohibited from increasing their coverage of solicited ratings," said the report, made available to the media.
EU politicians have accused the ratings agencies of contributing to the financial crisis, and making it harder to rescue euro zone countries like Greece because of rating downgrades at sensitive moments. The proposed market share curbs echo a similar approach in another draft EU law to shake up auditing, a global sector dominated by the "Big Four" auditors, KPMG, Deloitte, Ernst & Young and PricewaterhouseCoopers. They are also under the gun for perceived failings in pre-crisis auditing of banks.
Industry experts estimate that the "Big Three" rating agencies' market shares in individual asset classes often top 80 percent or more as issuers typically have two or in some cases three ratings. If approved, such curbs could force issuers to drop some ratings or use a less well-known agency which investors outside the EU may not be familiar with, experts say. There are about 15 authorised credit rating agencies in the EU, but most are very small apart from the three main agencies.
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