In a non-technical language, the book provides an overview of the history of ratings, the role of rating agencies, the industry, the uses of ratings and the rating process. The US subprime crisis that highlighted relevant deficiencies in the rating agencies’ activities and their systemic relevance, led to an international consensus to establish public oversight and regulation of the rating business. The book explains the global initiatives undertaken by the G-20, the Financial Stability Board, and IOSCO to address those failures and the European implementation of such a consensus. It also prov ... More

In a non-technical language, the book provides an overview of the history of ratings, the role of rating agencies, the industry, the uses of ratings and the rating process. The US subprime crisis that highlighted relevant deficiencies in the rating agencies’ activities and their systemic relevance, led to an international consensus to establish public oversight and regulation of the rating business. The book explains the global initiatives undertaken by the G-20, the Financial Stability Board, and IOSCO to address those failures and the European implementation of such a consensus. It also provides an overview of the new European System of Financial Supervisors implemented as a reaction to the crisis and examines the supervisory and enforcement powers of ESMA, the new authority in charge of the registration and oversight of rating agencies. Through an in-depth analysis of the European Regulation’s requirements on governance, conflicts of interest, methodologies, disclosures, and transparency, the book provides a clear explanation of how rating agencies operate and how the identified failures have been addressed. The explanation of all these aspects is complemented with an analysis of guidance from supervisors (ESMA and EBA), IOSCO’s recommendations, and US legislation. Finally, the book discusses possible new regulatory developments in areas such as the agencies’ business model, competition, civil liability, and ratings of sovereign debt. It concludes with the authors’ support for an enhanced regulatory and oversight coordination at global level, a reduction of the existing over-reliance on ratings, and a concentration of resources on the enforcement of the current regulatory regime.