Editor's Note: This paper was originally published in the August 2011 issue of the CPI Antitrust Chronicle; however, given the appropriateness of the paper for this symposium and its continuing relevance, we are reprinting it.
It will have taken policy makers an extra financial crisis to realize that financial markets should not be hostage of the predictions of the "big three" credit rating agencies (the "CRAs"), i.e. Moody's Investors Services, Standard & Poor's, and Fitch ratings. Pluralism in ratings is the new mantra of regulatory proposals in the European Union ("EU") and the United States. And controversial proposals abound, with calls to dismantle the existing CRAs or to set-up public, State-sponsored rating agencies.
Interestingly, while all the evidence points to the existence of a competition problem in the rating industry, almost nothing has been written on whether the CRAs could be amenable to antitrust scrutiny. This is all the more surprising. From an economic standpoint, the credit rating industry exhibits structural-i.e., a tight oligopoly-and behavioral-i.e., ratings parallelism-features that routinely give rise to antitrust concerns. And from a legal standpoint, the competition rules are a very elastic instrument, which can: (i) be triggered ex officio under flexible conditions and at little costs; and (ii) lead to the adoption of remedies that often come close to standard regulatory obligations.
In this context, this paper seeks to assess the possibility of competition intervention in the credit ratings industry. Given that competition law does not prohibit oligopolistic market structures as such, a necessary trigger for antitrust enforcement is the existence of a course of conduct that either constitutes unlawful collusion under Article 101 the Treaty on the functioning of the EU ("TFEU"), or abuse of dominance under Article 102 TFEU. In the following sections we formulate hypothesis of infringements under Articles 101 and 102 TFEU, gauge their factual plausibility, and assess their legal vulnerability to competition proceedings.
Obviously, it would be beyond the scope of this paper to screen the various activities of CRAs that may give rise to a competition infringement. We thus focus only on whether CRAs' recent downgrading of sovereign ratings can trigger antitrust liability.