On 7 May 2010, the International Organization of Securities Commissions' Technical Committee published a consultation report on regulatory implementation of the statement of principles regarding the activities of credit rating agencies (CRAs).

The consultation report addresses several of the recent regulatory initiatives that impact or will shortly impact CRAs that are active in multiple jurisdictions.

The consultation report also reviews CRA supervisory initiatives in Australia, the European Union, Japan, Mexico and the United States in order to evaluate whether, and if so how, these regulatory programs implement the four principles set out in the IOSCO paper entitled Statement of Principles Regarding the Activities of Credit Rating Agencies. The four principles address:

  • Quality and integrity in the rating process.
  • Independence and conflicts of interest.
  • Transparency and timeliness of ratings disclosure.
  • Confidential information.

The consultation report notes that the four principles appear to be the building blocks upon which CRA regulatory programs have been constructed. For example:

  • Quality and integrity in the rating process is given effect in the regulatory programs through, for example, explicit requirements on CRAs to adopt, implement and enforce measures to ensure that credit ratings are based on a thorough analysis of all available and relevant information and that the information they use in developing credit ratings is of sufficient quality and from reliable sources.
  • Independence and conflicts of interest is given effect in the regulatory programs through, for example, provisions that require a CRA to implement procedures designed to identify and eliminate conflicts of interest inherent in its business activities.
  • Transparency and timeliness of ratings disclosure is given effect in the regulatory programs through, for example, provisions that require a CRA to publicly disclose to the market information about the methodologies it uses to determine credit ratings.
  • Confidential information is given effect in the regulatory programs through, for example, provisions that require CRAs to protect confidential information obtained from entities being rated so that the information cannot be used for inappropriate purposes (e.g. insider dealing).

The deadline for comments on the consultation report is 6 August 2010.

View IOSCO consultation report on regulatory implementation of the statement of principles regarding the activities of credit rating agencies, 7 May 2010