Italian call for powers to reject agency ratings

Leonardo Domenici, an Italian MEP, has called for European Union (EU) member states to have the right to dismiss credit rating agency verdicts.

In a move that goes “well beyond the commission’s original proposal”, according to the European Parliament, Domenici suggested prohibiting “unsolicited” sovereign debt ratings and establishing a fully independent public European Credit Rating Agency.

The role of credit rating agencies has already come under scrutiny in Britain at a Treasury select committee meeting attended by representatives from Legal & General, National Grid, the National Association of Pension Funds and the Association of Corporate Treasurers.

Georg Grodzki, the head of credit research at L&G, criticised the rating agencies for their collective failure in guarding against the financial crisis, but recognised the role they have to play. “Helpful but not necessary” was Grodzki’s verdict.

Data management specialist Phil Lynch, the president and chief executive of Asset Control, agreed that agencies played an important role but said clients suffered from an over­dependency.

“Anybody who is strictly relying on the work of an outside agency is not adding a huge amount of value,” he said.

Arguing that “we have to come up with new answers to the sovereign debt problem”, Domenici said more needed to be done to reduce this dependency, as well as to eliminate potential conflicts of interest.