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cra regulation in australia November 19, 2009

Posted by Bradley in : financial regulation , trackback

It’s hard to be CRA these days. As ASIC acts to remove protection of CRAs from liability (by requiring consent of a CRA for ratings to be included in sales literature (note: the ASIC press release is headlined “ASIC gives credit ratings agencies improved control over ratings use”), the FT reports that S&P (like Moodys) is withdrawing from the Australian retail market. ASIC’s new rules require CRAs to be licensed and subject to requirements which broadly track those which are being applied in the EU and the US. But ASIC requires firms which are involved in the retail market to be involved in an approved external dispute resolution scheme and it is this requirement the S&P Press release describes as critical to its decision:

Standard & Poor’s managing director for Australia and New Zealand John Bailey said, “We are supportive of regulations that strengthen transparency and oversight and improve market confidence. There is, however, a need for international consistency in regulatory oversight because ratings are issued and used globally.
“In terms of the requirements for a retail licence, we are concerned that membership of a local EDR scheme would interfere with the analytical independence of our rating opinions and undermine the global consistency and comparability of ratings.
“This scheme could change the substance of a rating and result in the creation of dual credit ratings – an Australian “EDR”domestic credit rating and a “rest of the world”credit rating. Because the local ombudsman would effectively be second guessing S&P’s analysts, we believe this would ultimately create investor confusion and harm financial markets.

A reminder that it’s not just the substance of the rules that matters, but also how those rules are to be enforced. Meanwhile, the EU Commission announced that had issued a statement of objections with respect to S&P’s practice of charging for the use of ISINs by EEA firms, arguing that it was in breach of Art. 82 (abuse of a dominant position).

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