Standard & Poor’s published a white paper examining investors’ needs and how various business models for credit rating firms could meet them.
The paper, titled “An Examination of How Investor Needs are Served by Various Ratings Business Models: Ensuring Analytical Independence and Freedom from Conflicts of Interest at Credit Rating Firms”, examines the advantages and disadvantages of the issuer-fee, subscriber-fee and government utility business models for ratings firms.
Based on numerous meetings with all types of market participants, including investors, regulators, legislators, economist and commentators, S&P believes discussion of potential business models for rating firms should focus on the benefits all market participants would receive. In examining the benefits, six requirements have emerged as the key areas of focus when discussing ratings.
The requirements are:
-Transparency,
-Prevention of Conflicts,-Quality,
-Breath of coverage,
-Market scrutiny and
-Investor choice.
“We believe that there is room for several business models in the credit rating industry,” says Deven Sharma, president, Standard & Poor’s. “Although each business model presents its own potential conflicts, we believe that appropriate regulatory oversight should allay concerns about conflicts of interest.”
“At the same time, we believe that it is vital for investors and issuers alike to have confidence in ratings and ratings agencies, and to have a range of options from which to select, according to their individual requirements.”
L.D.