CR Regulatory Implementation of the Statement of Principles Regarding the Activities of Credit Rating Agencies

Regulatory Implementation of the Statement of Principles Regarding the Activities of Credit Rating Agencies Consultation Report TECHNICAL COMMITTEE OF THE INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS MAY 2010 This paper is for public consultation purposes only. It has not been approved for any other purpose by the IOSCO Technical Committee or any of its members. Any final report will be submitted to the IOSCO Technical Committee for approval at the conclusion of the consultation process. 2 Foreword The International Organization of Securities Commissions‘ Technical Committee has published for public comment this Consultation Report on Regulatory Implementation of the Statement of Principles Regarding the Activities of Credit Rating Agencies (Consultation Report). The Consultation Report, prepared by the Technical Committee Standing Committee on Credit Rating Agencies, addresses several of the recent regulatory initiatives that impact or will shortly impact credit rating agencies. The Consultation Report will be revised and finalized after consideration of all comments received from the public, and a final report on Regulatory Implementation of the Statement of Principles Regarding the Activities of Credit Rating Agencies submitted to the Technical Committee for approval. How to Submit Comments Comments may be submitted by one of the three following methods on or before 6 August 2010. 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 Mohamed Ben Salem, Senior Policy Advisor at the following email address CRA-Principles@iosco.org;  The subject line of your message must indicate ̳Regulatory Implementation of the Statement of Principles Regarding the Activities of Credit Rating Agencies;‘  If you attach a document, indicate the software used (e.g., WordPerfect, Microsoft WORD, ASCII text, etc) to create the attachment; and  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: Mohamed Ben Salem Senior Policy Advisor International Organization of Securities Commissions (IOSCO) Calle Oquendo 12 28006 Madrid Spain 3 Your comment letter should indicate prominently that it is a ―Public Comment on Regulatory Implementation of the Statement of Principles Regarding the Activities of Credit Rating Agencies.” 4 CONTENTS Chapter Page 1 Executive Summary 5 2 Background 8 3 Scope and Purpose of Report 13 4 Components of CRA Regulatory Programs 15 5 The Various Ways CRA Regulatory Programs Promote the Objectives of the IOSCO CRA Principles 20 6 Conclusion 38 5 Chapter 1. Executive Summary This consultation paper of the Technical Committee (TC) of the International Organization of Securities Commissions (IOSCO) addresses several of the recent regulatory initiatives that impact or will shortly impact credit rating agencies (CRAs) that are active in multiple jurisdictions. In particular, the paper reviews CRA supervisory initiatives in Australia, the European Union (EU), Japan, Mexico, and the United States (US) in order to evaluate whether, and if so how, these regulatory programs implement the four principles set forth in the 2003 IOSCO paper Statement of Principles Regarding the Activities of Credit Rating Agencies (IOSCO CRA Principles)1. The four principles address: 1) quality and integrity in the rating process; 2) independence and conflicts of interest; 3) transparency and timeliness of ratings disclosure; and 4) confidential information. The Technical Committee Standing Committee on Credit Rating Agencies (TCSC6) undertook the evaluation work that underlies this paper. TCSC6 is a newly formed permanent standing committee of the TC that is continuing the work of the Task Force on Credit Rating Agencies created by the TC in 2003 (CRA Task Force). TCSC6‘s evaluation reveals that although the structure and specific provisions of CRA regulatory programs may differ, the objectives of the four IOSCO CRA Principles are embedded into each of the programs. Indeed, the principles appear to be the building blocks upon which CRA regulatory programs have been constructed, as illustrated in the following examples. The first principle – quality and integrity in the rating process –