Michael Creed (Cork North West, Fine Gael)
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Question 166: To ask the Minister for Finance the consideration at Council of Finance Ministers regarding the issue of rating agencies; and if he will make a statement on the matter. [39646/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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On June 2nd last, the European Commission published a proposal to amend the existing Regulation governing the activities of Credit Rating Agencies (CRAs). This proposal is currently being examined at Council working group level, as well as within the European Parliament under the co-decision process. The proposal is principally a technical measure to allow the European Securities and Markets Authority (ESMA) to assume responsibility for the regulation of CRAs which operate in the EU. ESMA, which is being established as part of the implementation of the recommendations of the de Larosière Report on financial supervision, will become operational at the start of 2011. The proposal amends the existing CRA Regulation (No. 1060/2009) in which national competent authorities (i.e. central banks or financial regulators) were responsible for supervising the activities of CRAs. The national competent authorities will be required to co-operate with ESMA.

The proposal also seeks to put in place a provision whereby national competent authorities would be required to ensure that all regulated financial institutions, which use ratings produced by CRAs, comply with certain requirements when using those ratings.

The proposal also introduces greater transparency on the ratings provided for structured financial products (e.g. asset backed securities). This obligation, which is already in place in some non-EU jurisdictions, will help avoid possible conflicts of interest, for instance, where CRAs are paid by issuers to produce ratings, and will enhance the transparency and quality of ratings. Ireland has supported the basic thrust of the proposals.

The main issue which is emerging is in relation to the treatment of ratings produced in countries outside the EU. Some Member States believe that the regulatory regime for non-EU countries should be equivalent to the European model, whereas others consider that ESMA's endorsement of these regulatory regimes should be sufficient. Ireland is in the latter camp. The Council working group discussions are progressing well and the Belgian Presidency has indicated its desire to achieve agreement on this proposal before the end of the year.