IOSCO calls for global regulation of ratings agencies

The International Organization of Securities Commissions is seeking a global regulatory approach to monitoring the activities of ratings agencies.

The trade body is urging regulators to consider its code of conduct when framing legislation to minimise the risk associated with product ratings.

Financial heavyweights have attributed much of the credit crisis to an over reliance on credit ratings.

Concerned parties have posed questions about potential conflicts of interest faced by agencies like Fitch Ratings, Moody’s Investor Services and Standard & Poor’s with regard to taking subscription fees from the providers of the products that they rates.

Many investors invested in residential mortgage backed securities based on ratings by the agencies and the share prices of banks are now fluctuating partially due to the downgrading of RMBS assets held by lenders like Bradford & Bingley and HBOS.

IOSCO has established a task force on credit rating agencies will work towards developing mechanisms by which national regulators can coordinate their monitoring of rating agencies with the substance of its code of conduct.

The task force will set the terms and conditions of information exchange and cooperation by January 2009.

It will also conduct a review of agencies’ adoption of its code of conduct by agencies that stipulates sales and subscriptions must be handled by separate teams than those anazysing data and assigning ratings.

The results of the review will also be published in January.

A release from IOSCO says: “Events in the last 12 months have clearly shown the need for greater interaction between ratings agencies and regulators and the task force will examine the possibility of developing an international monitoring body.”