The European Banking Federation (FBE) is working with the European Commission to assess whether any EU legislation is required for the rating agencies industry.

The initiative was triggered by a vote last month in the European Parliament against a report by MEP Giorgos Katiforis, which highlighted the need to increase rating agencies’ disclosure. The report cited agencies’ failure to prevent corporate scandals such as Parmalat, Ahold or Enron as one of the reasons to tighten industry legislation.

But the Parliament rejected the proposal to create a European registration authority to supervise rating agencies and instead asked the Commission to review the issue and present its conclusions by July 2005.

Ian Mullen, chairman of the executive committee of the FBE, which represents around 4,000 banks, told The Banker that “to move to having a European regulatory body overseeing these rating agencies may very well be appropriate at some time in the future. But to move to that now was perhaps pre-emptive”.

As for the agencies’ inability to detect corporate scandals, Mr Mullen said these “were based on internal control lapses which supported (low) investment grade ratings. In my view, it is not the job of a rating agency to spot such mistakes; that is down to better corporate oversight by the boards’ audit committee”.

The FBE also rejected criticism of oligopoly in the industry, which was suggested by the report. Mr Mullen said: “One would expect that there wouldn’t be room for many more [agencies] than three or four.”

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