Credit-Rating Firms Fall Short on ABS, European Regulator Says

Credit ratings of asset-backed securities fall short of quality standards, according to the European regulator for Standard & Poor’s, Moody’s Investors Service (MCO) and Fitch Ratings.

Debt-rating companies lack “quality controls over information used and received from data providers,” have delayed annual rating reviews, and must strengthen “the review of methodologies” used to issue credit ratings on securities backed by assets such as residential mortgages, the European Securities and Markets Authority said on its website yesterday.

ESMA, which hasn’t fined a credit-rating firm since the authority was created in 2011, said last year that firms were falling short of European standards when grading sovereign debt. The European Central Bank, the Bank of England and other EU authorities have been pushing to revive the ABS market as a way to boost lending to businesses. ECB President Mario Draghi has also called for regulatory changes.

The credit-rating industry has come under greater scrutiny since it was blamed for fueling the 2008 financial crisis.