Call for Increased Robustness by Rating Agencies
CESR (the Committee of European Securities Regulators) has issued its advice to the EU Commission on the possibility of regulating credit rating agencies. It has recommended that the EU refrain from introducing regulation and give time to see how the IOSCO Code Fundamentals for Credit Rating Agencies works out in practice. The pressure to consider regulation of credit rating agencies stemmed from their failure to identify problems in companies like Enron, WorldCom and Parmalat, where apparently deliberate attempts were made by issuers to mislead the agencies (and the rest of the world). The ACT and AFTE in joint evidence to CESR urged that regulation would not be the best way of tackling this mischief. What is needed, says the ACT and the AFTE, is robustness on the part of rating agencies and good faith on the part of issuers – regulation cannot guarantee those qualities. The ACT and the AFTE said that good conduct would be more likely if the expectation of good behaviour is widespread in the community. The lack of cases where rating agencies have withdrawn ratings due to doubts about the issuer’s good faith is disturbing, said the associations, although it is recognised that agencies will need to use this sanction with the utmost caution.