IOSCO publishes CRAs good management report: IOSCO published a report titled "Good practices on reducing reliance on Credit Rating Agencies (CRAs) in Asset Management". IOSCO identified eight sound practices:

  • asset managers make their own determinations as to the credit quality of a financial instrument before investing and throughout the holding period; 
  • asset managers have the appropriate expertise and processes in place to perform credit risk assessment appropriate to the nature, scale and complexity of any investment strategy they implement and the type and proportion of debt instruments they invest in, and not to invest in products/issuers when they do not have enough information to perform an appropriate credit risk assessment;
  • external credit ratings may form one element of the internal assessment process but are not the sole factor supporting the credit analysis;
  • the manager’s internal assessment process is regularly updated and applied consistently;
  • where asset managers use external credit ratings, they understand the methodologies, parameters and the basis on which the opinion of a CRA was produced, and have adequate means and expertise to identify the limitations of the methodology and assumptions used to form that opinion;
  • asset managers review their disclosures describing alternative sources of credit information in addition to external credit ratings and make available to investors, as appropriate, a brief summary description of their internal credit assessment process, including how external credit ratings may be used to complement or as part of the manager’s own internal credit assessment methods;
  • when assessing the credit quality of their counterparties or collateral, asset managers do not rely solely on external credit ratings and consider alternative quality parameters; and
  • where external credit ratings are used, a downgrade does not automatically trigger the immediate sale of the asset. Should the manager/board decide to divest, the transaction is conducted within a timeframe that is in the best interests of the investors.

(Source: IOSCO Publishes Good Practices on Reducing Reliance on CRAs in Asset Management)