A new statutory cause of action against credit rating agencies – inconsistent messages from Europe

On 31 May 2013, new European legislation was passed to amend the Regulation on credit rating agencies which was first introduced in the aftermath of the financial crisis. Its primary objective is to help discourage the high level of reliance which has typically been placed by market participants on credit ratings. However, amongst its most controversial provisions, it introduces a new cause of action giving rise to civil liability on the part of credit rating agencies where losses are suffered by investors or issuers as a result of breaches of the Regulation caused by the agency’s gross negligence.

Set against a background in which the claims against credit rating agencies so far explored in various key financial centres have had contrasting levels of success, the EU’s response raises a number of interesting questions about whether imposing liability in this way is a sensible response to the perceived role of the main credit rating agencies in the financial crisis.

In an article first published by Hart Publishing as Edwards, "CRA 3 and the liability of rating agencies: inconsistent messages from the regulation on credit rating agencies in Europe" (2013) 7 LFMR 186, reproduced by agreement with the publishers, senior associate Harry Edwards looks at the detail of the new cause of action and considers the tensions it creates with the wider objectives of the legislation.

Click here to read the article.

Click here to read Harry’s previous article on two Australian court judgments regarding the liability of rating agencies and banks arising out of credit ratings given to structured credit products, and whether similar claims might be successful in the English courts (first published by Hart Publishing as Edwards, "Liability for the rating and sale of structured credit products: Australian cases and their (much) wider implications" (2013) 7 LFMR 88).