Stricter oversight needed for credit rating agencies

A tougher regime of supervision of credit rating agencies is evolving, a senior official with the International Organisation of Securities Commissions (IOSCO) has said.

As a speaker on a panel at the Australian Securities and Investments Commission (ASIC) summer school yesterday, Greg Tanzer, IOSCO’s secretary general, commented on the regulation of credit agency ratings, noting there used to be greater due diligence carried out on agencies.

Tanzer also pointed to the frequency of “spot checking” in the past, arguing that such spot checks were appropriate as credit ratings agencies must “prove a value proposition”.

Tanzer said while IOSCO has been addressing credit ratings agencies in the lead up to the crisis, it should have been “bolder” in its work.

The panel noted that credit rating agencies vary across jurisdictions and Tanzer distinguished between the US and Europe, saying both took as a “baseline” the IOSCO code of conduct, which requires correct disclosure of information and methodology, among other elements.

However, agencies in Europe must register in each European jurisdiction it would like to operate in, while emerging markets have long required credit rating agencies to register with a regulatory authority.

Also present on the panel was Zarinah Anwar, the chairman of Malaysia’s Securities Commission, who said there were shortcomings in terms of professionalism and quality of rating agencies in Asian markets, and a lack of oversight. Anwar said agencies are now made to register in order to be recognised. “We do exercise quite vigilant oversight,” she said, particularly in relation to the quality of people involved, methodology and publication, among other things.

Earlier in the session, the commissioner of the US Securities and Exchange Commission, Kathleen Casey, argued there should “100 per cent” disclosure of credit rating agencies.