Rules adopted in Europe in response to the financial crisis have improved the governance and operation of credit rating agencies (CRAs), a new report finds, but they seem to have had little effect on competition. And it’s too early to assess the impact on conflicts of interest, the report says.

The European Securities and Markets Authority (ESMA) published a report on Friday, which examines the impact of the regulators’ efforts to provide stronger controls around credit ratings for structured finance instruments, and to reduce investors’ mechanistic reliance on ratings.

Most of the 24 CRAs that are registered in the EU focus on a particular asset class or country, the report says, and only the largest CRAs offer credit ratings for all different asset classes throughout the EU and globally.

“The high fees charged and regular fee increases imposed by some CRAs suggest there may be little effective competition for the provision of credit ratings in some specific market segments within the EU,” the report notes. “Following the financial crisis, the CRA Regulation aimed to improve investor confidence and stimulate competition for the provision of structured finance ratings, but ESMA finds that the measures adopted have had little impact to date.”

In addition, references to credit ratings still remain in national and EU legislation, the report finds. “As it may not be practical to remove all of these references, ESMA notes future action should focus on mitigating mechanistic reliance on credit ratings rather than removing them from legislation entirely,” the report says.

The report also makes a couple of recommendations regarding enforcement. ESMA’s enforcement powers would be more effective if all requirements in the rules had a corresponding violation, it says, and if the fines it can impose were geared to the size of the rating agency, “to ensure they have a proportionate and deterrent effect on CRAs of different sizes.”

ESMA could use further supervisory powers regarding the appointment of independent non-executive directors by CRAs, the report adds.

“The financial crisis made it clear that reforming the CRA industry was imperative in order to have safer financial markets and I am pleased to report that the resulting legislation and our role as direct supervisor of CRAs are having a positive impact,” says Steven Maijoor, chairman of ESMA, in a statement.

“While it is encouraging to see that changes are taking place, we are realistic and know there is still work to be done which is why we have made recommendations relating to further supervisory powers regarding the appointment of independent non-executive directors and enhanced enforcement powers,” he adds.

The ESMA proposes to reassess the implementation of the CRA rules within the next three to five years.