EU members have approved a new law to increase ratings agencies' liability. The move follows controversial ratings that have misled investors and damaged debt-stricken countries during the financial crisis.
Leaders from the European Union and the EU parliament announced stricter rules late on Tuesday meant to hinder undue influence of credit ratings agencies over investors. The new law was aimed primarily at the big three agencies, Fitch, Moody's and Standard & Poor's.
"They will have to follow stricter rules which will make them more accountable for mistakes in case of negligence or intent," said Internal Market and Services Commissioner, Michel Barnier, said in a statement.
The EU has been seeking to increase the agencies' liability in light of accusations of overrating risky investments that lay at the heart of the financial crisis. They have also been faulted with downgrading countries trying to regain economic stability, according to the Internal Market and Services Commissioner.
"Credit rating agencies will have to be more transparent when rating sovereign states, respect timing rules on sovereign ratings and justify the timing of publication of unsolicited ratings of sovereign debt," he said.
Under the EU's new law, credit ratings agencies must announce the date they plan to publish new ratings for countries. The new rating must be published after the close of business and before the stock market reopens in order to avoid volatile market reactions.
The public is also supposed to have greater access to the ratings, thus improving transparency.