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Iosco consults on CRA best practices
09 June 2014
Commission calls for industry input on credit ratings practices
The International Organisation of Securities Commissions
(Iosco) has launched a consultation on ways to reduce
over-reliance on external credit rating agencies (CRAs) in
the asset management sector.
the importance for asset managers to have the appropriate
expertise and processes to assess and manage the credit risk
with their investment decisions.
In its consultation report Good Practices on
Reducing Reliance on CRAs in asset management,
said it wants to gather
the views and practices of investment managers, institutional
investors and other interested parties.
The role of CRAs has come under regulatory scrutiny, mainly as
a result of the over-reliance of their ratings in the run-up to
the financial crisis.
report recognises that external ratings are useful alongside
other sources and provide an independent opinion for internal
To avoid over-reliance on external ratings, the report lists
eight possible good practices that managers could
These include investment
managers making their own decisions over the credit quality of
securities or funds but the report also lists a number of practices which are
"encouraged" by regulators.
The practices that could have regulatory input include the
reviewing of disclosures, the use of internal
sources of credit information in addition to external credit
ratings, the disclosure
of the use of external credit ratings and how they are
To address concern over the role of
CRAs, the Financial Stability Board (FSB) published a report
on Principles for
Reducing Reliance on CRA Ratings in October 2010. Iosco is translating the Principles
into more specific policy action.
Iosco also has launched a separate
project to identify the good practices of
intermediaries in using alternatives to credit
ratings in order to assess creditworthiness.