IOSCO Code of Conduct Fundamentals for CRAs

IOSCO: publicatie Code of Conduct Fundamentals for Credit Rating Agencies

De toezichthouders verwachten van de kredietbeoordelaars dat zij de gedragscode overnemen of implementeren in de interne codes, bekendmaken hoe zij de afzonderlijke voorgestelde maatregelen hebben geïmplementeerd en in in hoeverre hun interne code afwijkt van de gedragscode van IOSCO. Beleggers zullen dan zelf met de toegenomen transparantie kunnen nagaan in hoeverre zij kunnen vertrouwen op de kwaliteit, onafhankelijkheid en tijdigheid van de kredietbeoordelingen.

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IOSCO RELEASES FINAL REPORT ON CODE OF CONDUCT FUNDAMENTALS FOR CREDIT RATING AGENCIES

IOSCO has released the final report on Code of Conduct Fundamentals for Credit Rating Agencies (CRAs). The release of the report follows the earlier release of a draft Code in October 2004 followed by an extensive consultation process involving regulators, industry, issuers and the public.  The final report reflects this input.

The Code includes a set of strong and practical measures that serve as a guide to CRAs as well as to the industry as a whole. IOSCO is confident that the measures will receive the full support of the global financial services industry including CRAs and that the Code will be backed by thorough compliance and enforcement mechanisms.

The Chairman of the IOSCO Technical Committee, Mr. Andrew Sheng, said that "The essential purpose of the Code is to promote investor protection by safeguarding the integrity of the rating process. The reason that we devoted so much effort to this policy area is because we recognize the importance of reliable and accurate credit ratings in helping investors assess the credit risks they face when making investment decisions".

The Code outlines how ratings agencies are to deal with issues such as avoiding potential conflicts of interest, improving the transparency of the ratings process and protecting their integrity and independence while dealing fairly with issuers, investors and other market participants. The Code has been designed to be used by ratings agencies of all sizes and business models, operating in all jurisdictions.

Central to the Code is a disclosure mechanism which will assist compliance. In order to promote transparency and improve the ability of market participants as well as regulators, CRAs will now be obliged to disclose how each of the provisions of the Code Fundamentals is addressed in the CRA's own code of conduct. Requiring CRAs to disclose how their own codes deviate from the IOSCO Code Fundamentals will permit market participants and regulators to draw their own conclusions and to react accordingly.

Although the IOSCO Code is voluntary, Mr. Sheng believes that there will be sufficient market pressure on CRAs to fully comply. "Failure to comply would undoubtedly have an adverse impact on individual CRAs as the industry and investors become aware of instances of non-compliance. We believe that in order to gain advantage in the market-place most CRAs will actively work to ensure their compliance with the IOSCO Code".

One of the main advantages of the measures outlined in the Code is that they are sufficiently flexible to enable CRAs and regulators to take into account differences between countries. In this way the Code can be incorporated according to variations in legal and market circumstances.

The release of this final report on Code Fundamentals follows an extensive consultation process that took place after the draft Code Fundamentals were issued in October 2004. 

During the consultation period, IOSCO received approximately 40 submissions from a wide range of industry stakeholders including ratings agencies, financial institutions and individual investors from around the world. This input proved to be invaluable in making modifications to the Code. The comments received were consistently in favor of market mechanisms. 

The whole process leading to the adoption of this final Code commenced following the release by IOSCO in September 2003 of a series of high level principles governing the activities of CRAs. The technical work was led by a Task Force chaired by Mr Roel Campos, Commissionner of the US SEC. The final Code was also developed in cooperation with the Basel Committee of Banking Supervisors and the International Association of Insurance Supervisors. 

IOSCO may revisit the Code Fundamentals in the future should experience dictate that further modifications are necessary.

For further information contact

Mr. Philippe Richard, IOSCO Secretary General 34 (91) 417 55 49 or 650 37 88 98
or
Mr. Andrew Larcos, IOSCO Public Affairs Officer 34 (91) 417 55 49