Arthur Morgan (Louth, Sinn Fein)
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Question 117: To ask the Minister for Finance if he will explore the role of credit rating agencies in the financial crisis; if it will be within the remit of the Financial Regulator or the Central Bank Commission to ensure the transparency of the credit rating process; if reliance on these ratings will be reduced over time in view of the fact that at the height of the boom these agencies gave high ratings to highly risky products; and if he will make a statement on the matter. [17091/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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It is generally accepted that Credit Rating Agencies (CRAs) played a significant role in the current financial crisis and that CRAs provided high ratings to complex products which bolstered investors' confidence in these products. In hindsight, these high ratings were clearly inappropriate. There was also a perception that CRAs were susceptible to conflicts of interest as they also provided advisory services to their clients.

At EU level, this issue was the subject of a number of discussions at the Ecofin Council of Ministers as well as at the European Council. In November 2008, the European Commission adopted a proposal for a Regulation to govern the way in which CRAs could operate in the EU which, following negotiations with the European Council and the European Parliament, was adopted in September 2009. The Regulation introduces rules in a number of areas, such as: CRAs must have sufficient knowledge to enable them rate complex instruments; Their rating methodologies must be disclosed; They must appoint at least two independent directors; CRAs will no longer be able to provide advisory services; and the quality of their ratings must be subject to regular review. Each Member State is required to appoint a competent authority by June 7th next and my Department is currently finalising the arrangements for the Central Bank and Financial Services Authority of Ireland to be the competent authority in Ireland.

I would like to remind the Deputy that under the package of supervisory reforms in the EU, which emanate from the de Larosière Report, the soon to be established European Securities and Markets Authority (ESMA) will be the competent authority throughout the EU for the supervision of CRAs' activities. ESMA is expected to assume this role in early 2011. With regard to the reliance on ratings produced by CRAs, I believe that it is fair to say that investors should no longer rely solely on ratings produced by CRAs. In my view, ratings are one of the elements that can be usefully used by investors when considering investment decisions, but they should not be regarded as the most important determining factor for those decisions.