The International Organization of Securities Commissions advised regulators to encourage fund managers to make their own decisions about credit quality and to understand ratings companies’ methodologies as a means to reduce reliance on external grades.
The recommendations will be addressed to regulators, investment managers and investors, the Madrid-based association of more than 120 global regulators, said today in a statement. The report responds to a similar paper in 2010 from the Financial Stability Board that asked for specific policies to reduce the reliance on the rankings by banks, institutional investors and other market participants.
Ratings companies were blamed in U.S. Congressional reports for helping spark the worst financial crisis since the 1930s by inflating grades on subprime-mortgage bonds to win business from Wall Street banks. The ratings business model, where issuers pay the companies to evaluate their bonds, was largely criticized and has been left intact.
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