The European Central Bank published a comment in response to the European Commission's public consultation on credit rating agencies, addressing a wide range of topics. For example, concerning the use of external ratings in the mandates and investment policies of investment mangers, ECB said,
"Regarding the use of external ratings in investment mandates and policies, the Eurosystem suggests that for those markets and funds where it is assessed that decisions triggered by these mandates have significant economic value for the firm and a potentially significant impact on markets, introducing a flexibility clause in the investment mandates might reduce the simultaneous and forced selling of distressed securities. The advantages of introducing a flexibility clause in investment mandates are associated with a) the relative ease and speed to implement this measure and b) the contribution to mitigating cliff effects of ratings downgrades."
Other topics addressed include the use of ratings for internal risk management purposes; application of standardised approaches under the Basel II framework; enhancing transparency and monitoring of sovereign debt ratings; enhancing competition in the credit rating agency industry; civil liability of credit rating agencies; and potential conflicts of interest due to the "issuer pays" model.
