CR01/2014 Code of Conduct Fundamentals for Credit Rating Agencies

CODE OF CONDUCT FUNDAMENTALS FOR CREDIT RATING AGENCIES Consultation Report THE BOARD OF THE INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS CR01/2014 FEBRUARY 2014 ii Copies of publications are available from: The International Organization of Securities Commissions website www.iosco.org © International Organization of Securities Commissions 2014. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. iii Foreword The Board of the International Organization of Securities Commissions (“IOSCO Board”) has published this Consultation Report, Code of Conduct Fundamentals for Credit Rating Agencies, prepared by IOSCO Committee 6 on Credit Rating Agencies (“Committee 6”). This Consultation Report proposes significant revisions and updates to the Code of Conduct Fundamentals for Credit Rating Agencies, which was last revised in 2008. The IOSCO Board seeks the views of stakeholders, including credit rating agencies (“CRAs”), on the proposed revisions to the Code of Conduct Fundamentals for Credit Rating Agencies in this Consultation Report. How to Submit Comments Comments may be submitted by one of the three following methods on or before 28 March 2014. To help us process and review your comments more efficiently, please use only one method. Important: All comments will be made available publicly, unless anonymity is specifically requested. Comments will be converted to PDF format and posted on the IOSCO website. Personal identifying information will not be edited from submissions. 1. Email Send comments to consultation-2014-01@iosco.org • The subject line of your message must indicate Code of Conduct Fundamentals for Credit Rating Agencies. • If you attach a document, indicate the software used (e.g., WordPerfect, Microsoft WORD, ASCII text, etc.) to create the attachment. • Do not submit attachments as HTML, PDF, GIFG, TIFF, PIF, ZIP or EXE files. 2. Facsimile Transmission Send by facsimile transmission using the following fax number: + 34 (91) 555 93 68. 3. Paper Send 3 copies of your paper comment letter to: Mr. Tim Pinkowski International Organization of Securities Commissions (IOSCO) Calle Oquendo 12 28006 Madrid Spain Your comment letter should indicate prominently that it is a “Public Comment on Code of Conduct Fundamentals for Credit Rating Agencies.” iv Code of Conduct Fundamentals for Credit Rating Agencies – Consultation Report Table of Contents I. Introduction ............................................................................................................................ 1 II. Historical Background ........................................................................................................... 1 III. Proposed Revisions to the IOSCO CRA Code ...................................................................... 5 IV. Request for Comment .......................................................................................................... 18 APPENDIX A: Proposed revised IOSCO CRA Code (Clean Version) APPENDIX B: Proposed Revised IOSCO CRA Code (Comparison with 2008 CRA Code) 1 I. Introduction The IOSCO Code of Conduct Fundamentals for Credit Rating Agencies (the “IOSCO CRA Code”) is intended to offer a set of robust, practical measures as a guide to and a framework for CRAs with respect to protecting the integrity of the rating process, ensuring that investors and issuers are treated fairly, and safeguarding confidentia l material information provided them by issuers. The IOSCO CRA Code was first published in 2004 when few jurisdictions had laws governing activities of CRAs. In recent years, many IOSCO members have implemented registration and oversight programs for CRAs and have exercised supervisory authority over CRAs. In light of these developments, IOSCO is proposing significant revisions and updates to the IOSCO CRA Code.1 II. Historical Background In 2003, IOSCO published a set of principles with respect to CRAs (the “IOSCO CRA Principles”).2 At the same time, IOSCO also published a report outlining the activities of CRAs, the types of regulatory issues that arise relating to these activities, and how the IOSCO CRA Principles address the issues.3 The report highlighted the growing and someti mes controversial importance placed on credit ratings, and found that, in some cases, CRAs’ activities are not always well understood by investors and issuers alike. Given this lack of understanding, and because CRAs typically were subject to little formal regulation or oversight in most jurisdictions, concerns had been raised regarding the manner in which CRAs protect the integrity of the rating process, ensure that investors and issuers are treated fa