The European Securities and Markets Authority (ESMA) warned three largest rating agencies (Fitch Ratings, Standard & Poor’s, and Moody’s Investors Service) of possible enforcement action for deficiencies in the way they rank sovereign bonds, the report published on December 2 reads.
ESMA chairman Steven Maijoor explained that possible sanctions may include a fine or withdrawing a license. The ESMA accused the agencies of frequent delays in publications of sovereign ratings and possible leaks of information to the third parties. The other sticking point was the possible conflict of interests during the rating assignment and "reliance on junior support staff".
Meanwhile, the regulator underscored that it is has not determined yet whether the agencies violated the European laws. The ESMA’s investigation took place between February and October 2013. The European authorities noted that the sovereign rating process “could pose risks to the quality, independence and integrity of the ratings”, cause potential conflict of interests, and peculiarities of rating publication as the reasons for investigation.
The rating agencies have been criticized since the financial crisis unfolded both in Europe and the USA for the mistakes in the securities assessment. In 2011, Greece’s sovereign rating was lowered while the country was renegotiating its bailout with international creditors. Also in that year Washington strongly criticized the cut in the U.S. sterling rating. Three largest rating agencies are located in the USA.
