On Monday, the International Organization of Securities Commission’s (IOSCO) Task Force on Credit Rating Agencies announced next steps on compliance enforcement with the Code of Conduct Fundamentals for Credit Rating Agencies (Code of Conduct), as modified in May 2008 (See Regulation – Changes to Code of Conduct for Credit Rating Agencies, Chase Cooper News, 2nd June).
The Code focuses on transparency and disclosure in relation to credit rating agencies’ (CRAs) methodologies, conflicts of interest, use of information, performance and duties to issuers and the public. It does not dictate business models or governance but rather seeks to provide the market with information to judge and assess CRA activities, performance and reliability. IOSCO believes that, for the Code of Conduct to be effective, CRAs need to comply with the prescribed disclosures and regulators should take steps to determine the veracity of these disclosures.
The Task Force is currently exploring the means by which its members, securities regulators globally, might work together to verify the proper and complete disclosure by CRAs of information required by the Code, and adherence to the mechanisms it contains designed to protect against conflicts of interest. As part of this project, the Task Force will be considering a number of options for the effective monitoring of compliance with the Code, including the potential for: Detailed arrangements for exchanging information between national securities regulators; Cooperative inspection programs for CRAs; or A specialized IOSCO committee to confer on compliance with the Code of Conduct by CRAs. In its deliberations IOSCO also will review members’ recent and upcoming rule proposals.
The Task Force will submit its final recommendations to the Technical Committee at its next meeting in September 2008.