21 December 2012

IOSCO publishes two reports advancing its work on Credit Rating Agencies

Both reports form part of IOSCO's effort to improve the integrity of credit rating agencies (CRAs), as part of the global effort to enhance investor protection and the fairness, efficiency and transparency of securities markets. In a communiqué last month, the G20 Finance Ministers and Central Bank Governors encouraged further work by IOSCO “to enhance transparency of and competition among credit rating agencies.”

Despite concerns about their performance during the 2008 crisis, CRAs continue to play an important role in most modern capital markets. Issuers and corporate borrowers rely on the opinions of CRAs to raise capital. Lenders and investors use credit ratings in assessing the likely risks they face when lending money to, or investing in, securities of a particular entity. Institutional investors and fiduciary investors, likewise, use credit ratings to help them allocate investments in a diversified risk portfolio. Finally, laws and regulations use credit ratings to distinguish creditworthiness.

Internal Controls and Conflicts of Interest

The final report provides an overview of the internal controls and conflicts of interest procedures adopted by a diverse array of credit CRAs. The findings from the report will help inform IOSCO’s current review of the IOSCO Code of Conduct Fundamentals for CRAs (the Code), which is aimed at ensuring the Code remains relevant as the international standard for CRA self-governance. The Code was last revised after the 2008 financial crisis raised concerns about the quality of credit ratings and credit rating methodologies, the timeliness of adjustments to credit ratings, the integrity of the credit rating process, and how conflicts of interest are managed by CRAs.

Establishing and Operating Supervisory Colleges

The consultation report on Supervisory Colleges for Credit Rating Agencies recommends establishing supervisory colleges for internationally active credit rating agencies (CRAs) and provides preliminary guidelines on how to establish and operate them.

The dispersion of internationally active CRA affiliates worldwide poses a challenge to supervisors, as they may only have perspective on the CRA activities in their jurisdiction. The creation of a CRA colleges could ultimately enhance the effectiveness of supervisors’ risk assessment and oversight of these internationally active CRAs by facilitating information exchange and, if appropriate, cooperation.

The closing date for responses to the consultation report is Friday 15 February, 2013.

Media release

Final report

Consultation report

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