DLA Piper: How Are the EU and US Reforming the Rating Agencies?

DLA Piper: How Are the EU and US Reforming the Rating Agencies?


A major strand in the narrative of the financial meltdown was that the subprime mortgage-backed securities and the subprime collateralized debt obligations sectors became unmoored from the market and rating agency discipline that had characterized other segments of the securitization market.

In the wake of the financial collapse, many commentators, as well as members of Congress and regulators, identified the rating agencies as among the chief culprits. Holding the rating agencies accountable was, however, only the beginning of the analysis. A more difficult part was determining what measures should be adopted to prevent this problem from recurring.

In the US, the Dodd-Frank Wall Street Reform and Consumer Protection Act adopted numerous measures targeting the rating agencies and launching a number of rule-making projects to address this issue. Even before passage of Dodd-Frank, the Securities Exchange Commission promulgated a new rule attempting to address the "race to the bottom" phenomenon that afflicted the rating agencies' analytics in connection with the subprime market.

Simultaneously, across the Atlantic, legislative reforms have been enacted in successive waves within the European Union to address the perceived rating agency deficiencies. This reform process is still moving ahead.

Writing for Practical International Corporate Finance Strategies, Ron Borod and Martin Bartlam look at these proposed rules in the EU and the US - shedding light on the evolution of rating agency regulation and contrasting the ways the EU and US are addressing the same problem.

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