The International Organization of Securities Commissions recommended that regulators of credit-rating firms improve how they share information through the creation of a college to enhance oversight.
The international policy forum for regulators advocates that supervisors share information, including how credit graders comply with local laws, manage conflicts of interest and operate their methodologies, Madrid-based Iosco said today in a statement on its website. The group’s membership regulates more than 95 percent of the world’s securities markets.
“The dispersion of internationally active CRA affiliates worldwide poses a challenge to supervisors, as their perspective may be limited to the CRA activities in their jurisdiction,” Iosco said in the statement.
U.S. lawmakers targeted the credit-grading business with the 2010 Dodd-Frank Act after the collapse of top-ranked mortgage-backed securities contributed to $2.1 trillion in losses at the world’s largest banks, leading to the longest recession since the 1930s. Reports from the U.S. Senate Permanent Subcommittee on Investigations and the Financial Crisis Inquiry Commission cited failures by the companies as a cause of the financial crisis, which began in 2007.
“The creation of a CRA college could ultimately enhance the effectiveness of supervisors’ risk assessment and oversight of internationally active CRAs by facilitating information exchange and cooperation among them,” Iosco said.
Standard & Poor’s, the world’s largest credit rater, was sued by the U.S. Justice Department in February, which alleged the unit of McGraw Hill Financial Inc. (MHFI) misrepresented risks of mortgage bonds to win business from Wall Street banks. The government’s case highlighted the New York-based company’s use of the group’s code of conduct. McGraw Hill has said it will vigorously defend itself against the lawsuit.
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