EU parliament tightens rules on ratings agencies

Under the new regulations, agencies such as Standard & Poor's, Moody's and Fitch, will have to be much more open in their deliberations and could face legal proceedings if found at fault in their work.

Parliament voted through the legislation with 579 votes in favour, 58 against, after MEPs and the European Commission in November negotiated tightened rules which watered down some of the more radical proposals but still gave supervisors new bite.

EU Internal Markets Commissioner Michel Barnier said the changes "will considerably improve the quality of ratings."

The agencies "will have to be more transparent when rating sovereign states and will have to follow stricter rules which will make them more accountable for mistakes in case of negligence or intent," Barnier said in a statement.

The new rules should improve competition in an industry dominated by the top three, reduce the agencies' influence, eliminate conflicts of interest and make the companies liable to legal redress, he said.

The changes followed uproar in Europe over successive ratings downgrades at key turning points in the eurozone crisis which added to the difficulties governments faced in trying to stabilise their finances.

A downgrade in a country or company's rating marks an increase in risk and typically increases their borrowing costs as a result, an added burden at a time when financial markets were reluctant to lend to weaker eurozone states.

The ratings agencies say in their defence

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