Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

There’s no way, but the hard way

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The Commission’s Draft Proposal for a New Regulation on Credit Rating Agencies (“CRAs”) is just out.

It enshrines a whole host of competition-related remedies (see text at the end of this post). Amongst the  proposals on the table:

  • A limitation of the duration of CRA-issuers business relationships to a maximum of 3 years (article 6b);
  • Injunctions on outgoing CRAs to exchange information with incoming CRA (article 6b);
  • A 10 years general ban on merger and acquisitions, that applies to CRAs holding a market share > 20% (article 6c);
  • Remedies including fines, which bear intriguing resemblance to penalties for competition infringements.

The proposal however abandons the option of creating a publicly funded European rating agency, given “concerns relating to conflicts of interest and its credibility, especially if such CRA would rate sovereign debt”.

In light of  this, a question springs to mind: if (i) the problems that plague the rating industry are competition related; and (ii) similar remedies can be ordered on the basis of the competition rules, why follow a  cumbersome legislative approach, rather than using the good old, flexible Articles 101 and 102 TFEU?

The answer is relatively straightforward: the competition rules only kick in in the presence of a competition infringement in the form of an unlawful agreement or an abuse. To date, no such conduct has been reported in the ratings industry (that said, I have argued elsewhere that cooking an Article 101 or 102 TFEU case might not be that difficult).

Because all competition problems cannot be solved with the competition rules, there is thus a “gap” in the competition toolbox of the TFEU.

In some Member States, like the UK,  this gap is filled with the possibility to launch “market investigations” and possibly order intrusive remedies where “any feature, or combination of features, of each relevant market prevents,  restricts or distorts competition“.

It is certainly about time for the EU to enjoy similar powers. The sector inquiries found at Article 17 of Regulation 1/2003 only provide an imperfect substitute.

Otherwise, the EU might have no other choice but to follow the “hard way” with competition issues subject to political maneuvers of all sorts and endless,  protracted negotiations (but true though, in Airbourne’s lyrics “there’s no way but the hard way“).

Draft_Regulation_CRAs_20111104 clean FINAL-1 (1)

Written by Nicolas Petit

15 November 2011 at 12:43 pm

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