AMIC members welcomed the opportunity to discuss IOSCO Consultation Paper on Good Practices on Reducing Reliance on CRAs in asset management. The Council sought to highlight the ‘public-good’ aspects of credit ratings.
The AMIC is of the view that the IOSCO good practices are relevant as long as they maintain the public-good aspects of credit ratings and avoid unintended consequences such as increased costs and reduced access to capital markets. The current regulatory framework is so reliant on ratings that significant changes can only be conceived to take place over time. Mandates to use ratings have become part of the fabric of financial markets, and cannot be unpicked instantaneously.
One of the main concerns is the assurance of quality and integrity in the rating process, so that the credit rating agencies can fulfil their task of dissolving information asymmetry in the market. A methodical and transparent procedure of compiling the rating product has an important role in ensuring consistent quality and integrity of ratings. Each prognosis can only be as good as the data upon which it is based. The assurance of the quality of a rating also requires that the agencies satisfy high professional standards in the training and further education of their personnel.
The AMIC believes that there is some value in having in-house credit analysis functions. However the Council recognises that this possibility is only offered to the bigger players in the market, and those smaller investors may be at a disadvantage. Making the distinction and the degree of sophistication is therefore key to ensure the functioning of the asset management industry.
Full AMIC response
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