The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK ( TheStreet) -- The European Union has unveiled its much-discussed credit ratings agency reform plan. This comes on the heels of a blunder wherein a major agency accidentally sent an email announcing a downgrade to France's credit rating. (Similarly, the same rater made a $2 trillion math error when assessing the U.S.'s credit worthiness in August.)
The EU's proposed plan involves mandating a rotation of the credit raters issuers use (almost always
Standard & Poor's). Further, it would allow investors to sue credit ratings agencies and it would mandate they make their rating criteria clear. Meanwhile, America's Dodd-Frank Act has two highly contradictory sections attempting to reform the raters.
While some of these reforms have merit, none target what is in our view a key problem -- the issuer-pays model. Most (save for Dodd-Frank section 939) presume the problem is not enough regulation. But in fact, a major reason the oligopoly exists is this regulation-created issuer-pays model limits the market's ability to self-regulate.