Ratings houses may get more power

The Australian Securities and Investments Commission (ASIC) has made clear that credit ratings agencies may soon get tighter control over which product issuers use their analyses and how they are used.

In a consultation paper issued this week, the regulator has canvassed removing the class order that has allowed product issuers to use ratings house analyses without necessarily getting the specific permission of the credit ratings agencies themselves.

ASIC said credit ratings agencies could control issuers’ use of their credit ratings via initiatives such as intellectual property licensing, but by withdrawing its relief the regulator would be allowing the agencies to also control the use and presentation of their ratings in Product Disclosure Statements by giving or withholding consent.

The consultation paper has called for submissions from the financial services industry and ASIC has said it will be taking into account a number of issues including the regulatory and financial impact, the balance between making credit ratings available to retail investors and promoting the accountability of credit rating agencies to investors and control of credit agencies over the use of their ratings.

The ASIC consultation paper noted that credit ratings agencies have argued that their ratings are not prepared with retail investors in mind, but suggests that this does not necessarily mean that the ratings are irrelevant to the decisions made by retail investors in relation to debt or structured products.