The review found that progress toward the removal of references to CRA ratings from standards, laws and regulation has been uneven across jurisdictions and the financial sectors. Even so, removing references to CRA ratings from laws and regulations is only the first step; mechanistic reliance on CRA ratings can also come from market practices and contracts. The key challenge lies in developing alternative standards of creditworthiness and processes so that CRA ratings are not the sole input to credit risk assessment. National authorities therefore need to focus on establishing stronger internal credit risk assessment practices. In some instances, this may entail a fully independent risk assessment, and in other instances this may allow using CRA ratings as one indicator, amongst others, of credit risk.
The peer review set out several recommendations to address some of the challenges hindering progress toward implementation of the roadmap. In particular, national authorities should:
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implement their action plans and refine them as lessons of experience are gained.
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engage market participants to encourage: adoption of alternative approaches such as strengthening of internal credit assessment processes; and reviewing reliance on CRA ratings in private contracts, such as ratings triggers, which represent mechanistic reliance on CRA ratings.
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not replace mechanistic reliance on CRA ratings with mechanistic reliance on a very limited number of alternative measures, as this might lead to substituted procyclicality and herd behaviour.
The review also addressed a few recommendations to the standard-setting bodies.
Ravi Menon, Managing Director of the Monetary Authority of Singapore and Chairman of the FSB's Standing Committee on Standards Implementation (SCSI) that oversaw the preparation of the peer review, said: "The objective is not to eradicate CRA ratings but to promote sound judgement in assessing creditworthiness. This means taking account of a more comprehensive set of factors besides CRA ratings. We have made some progress in reducing reliance on CRA ratings but there is still some way to go in identifying an array of practical and suitable complements to CRA ratings".
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