Turner Review: Regulatory Reform For CRAs

Credit rating agencies (CRAs) should be subject to registration and supervision to ensure good governance and management of conflicts of interest, according to the Turner Review.
By None

Credit rating agencies (CRAs) should be subject to registration and supervision to ensure good governance and management of conflicts of interest, according to the Turner Review.

Lord Turner, chairman of the UK FSA, was asked by the Chancellor of the Exchequer to review the events that led to the financial crisis and to recommend reforms.

Rating agencies and regulators should also ensure that communication to investors about the appropriate use of ratings makes clear that they are designed to carry inference for credit risk, not liquidity or market price.

According to the report: Regulation can and should address issues relating to the proper governance and conduct of rating agencies and the management of conflict of interest. Legislation to achieve this aim is now being formulated by the European Union with regulation likely to enter into force in late summer 2009 if it is passed in first reading. The FSA supports the aims of this legislation.

As the legislation currently stands credit rating agencies will be registered and financial regulators such as the FSA will play a supervisory role, coordinated at European level via colleges, which will ensure that appropriate structures and procedures are in place to manage conflicts of interest and to reinforce analyst independence from commercial revenue maximising objectives. This supervisory oversight should extend to requiring that rating agencies only accept rating assignments where there is a reasonable case (based on historical record and adequate transparency) for believing that a consistent rating could be produced.

«