EU calls for probe of ‘serious’ S&P error regarding France

The European Union said French and EU regulators should investigate Standard & Poor’s erroneous message on France, calling it a “very serious incident.”

“We are not talking about just any market player but one of the biggest rating agencies, which, as such, has a particular responsibility,” Michel Barnier, the EU’s financial-services chief, said in a statement. “This shows that we are in an extremely volatile situation, that markets are extremely tense.”

Global equity, bond, currency and commodity markets were roiled when S&P sent and then corrected an erroneous message to subscribers suggesting France’s top credit rating had been downgraded. French 10-year bond yields surged as much as 28 basis points after the mistaken announcement. S&P affirmed France’s AAA rating in a later statement.

Under existing laws, the European Securities and Markets Authority “can already investigate whether existing rules have been breached,” Barnier’s spokeswoman, Chantal Hughes, told reporters today in Brussels. “The European authority for rating agencies together with France’s AMF will have to look into this incident.”

The European commission, the 27-nation EU’s executive arm, will next week present plans to toughen regulation of credit- ratings companies, Hughes said.

‘Gross Negligence’

The plans include empowering investors to sue ratings companies in cases where they have lost money through “gross negligence” or “misconduct,” she said. Such investors should “systemically” be able to take their grievances to national courts, Hughes said.

Barnier said that the S&P incident had strengthened his view that “Europe must adopt strict and rigorous rules” for ratings companies.

A spokesman for Standard & Poor’s in London could not be immediately reached for comment.

A downgrade of France’s credit rating would affect the rating of the European Financial Stability Facility, the bailout fund for struggling euro-area countries that has funded rescue packages for Greece, Ireland and Portugal partially through bond sales. If the EFSF has to pay higher interest on its bonds, it may not be able to provide as much funding for indebted nations.