The Securities and Exchange Commission denied the application of Dagong Global Credit Rating Co., one of China’s five official ratings companies, to become a Nationally Recognized Statistical Rating Organization in the U.S.
The SEC turned down the firm’s December request in a Sept. 22 order in part because the agency said it couldn’t reliably ensure that the Beijing company would comply with U.S. reporting rules. In correspondence this year with the SEC, Dagong said record requests would have to be approved by the China Securities Regulatory Commission. Dagong has no U.S. office, the SEC said.
“On the record before us, it appears that Dagong would not control what information would be produced to commission staff,” the SEC said in its denial. “As an initial matter, we are unable to conclude that Dagong can comply with the recordkeeping, production, and inspection requirements of the Exchange Act.”
The rejection was reported earlier today by the Wall Street Journal.
While U.S. regulatory rules such as capital requirements mandate the use of NRSRO debt ratings from firms such as Moody’s Investors Service, making the distinction important, the Dodd-Frank Act passed in July mandates regulators to remove all references to credit ratings of securities from their rules.
Dagong gave China’s government a higher debt rating than the U.S., U.K. or Japan in a report covering 50 nations it published in July.
Two other big ratings companies in China are tie-ups with international partners. China Chengxin International Credit Rating Co. is a joint venture with Moody’s, and China Lianhe Credit Rating is a joint venture partner with Fitch Ratings Ltd. Foreign ratings firms aren’t allowed to directly rate Chinese domestic currency bonds.