The European Economic and Social Committee (EESC) said on May 20 2009 that it fully supports the European Commission's plan to regulate and register credit rating agencies.

"Credit rating agencies played a defining role in the development and credibility of structured products that have turned out to be toxic and have destroyed hundreds of billions of dollars worth of assets," according to an EESC statement on the EC website.

The committee, which represents civil society, said that it was encouraging the EC to use the new registration process to open up the ratings business to new credit rating agencies, notably by supporting any initiatives to create an independent European agency.

EESC rapporteur Peter Morgan, from the employers’ group within the EESC, emphasised that credit rating agencies should be legal entities established in the EU and that the home member state should be the regulator.

"Furthermore, the Committee urged EU regulators not to place undue reliance on ratings, especially in the light of recent experience, where certain ratings have been found to be worthless," the statement said.

Morgan said that he was "delighted" to see that the proposed regulation allows for withdrawal of registration and the initiation of criminal proceedings.

Penalties must apply to cases of gross professional misconduct and lack of due diligence and be effective, proportionate and dissuasive, the statement said.

The EESC is asking the EC to deal with the issue of credit rating agency disclaimers.

"Because the disclaimers tend to render the ratings worthless, the ratings themselves are not actually a satisfactory basis for determining regulatory capital. Steps must be taken to hold credit rating agencies responsible for their ratings. Genuine errors can be tolerated but failures of due diligence cannot," the EESC said.

The EESC called on the relevant authorities in EU member states, as part of their organisational supervision, to watch closely the linkage between the rating business and the expectations of shareholders.

Particular attention should also be paid to the structure of executive performance bonuses, the EESC said.