Panel calls for tighter regulations of credit rating agencies

In the backdrop of global financial crisis and the resultant recession, the existing regulations on credit rating agencies (CRAs) need to be strengthened, the Committee on Comprehensive Regulation for CRAs said yesterday.

Dr. K P Krishnan, joint secretary (capital markets)

The panel, headed by Dr. K P Krishnan, joint secretary (capital markets), and representatives from all the financial sector regulators, however, noted that there is no immediate concern about the operations and activities of CRAs in India.

The committee was set up by the department of economic affairs, ministry of finance, to see whether the existing regulations are enough to control the crisis in the context of the recent financial slowdown.

The committee took note of international action in this regard and recommended that there may be enhanced disclosures, continuation of the issuer-pays model, strengthened process and compliance audit, reporting of ownership changes, disclosure of default and transition statistics and strengthening the CRA regulation in tune with these suggestions, the report said.

There were allegations globally that the rating agencies made misleading evaluations of mortgage-backed securities due in part to the lucrative fees they received from the same issuers they were supposed to be objectively evaluating.

 The attorney general of the US state of Ohio, Richard Cordray in November filed charges against leading CRAs saying that their false and misleading credit ratings on mortgage-backed securities cost the state $457 million (See: Ohio sues S&P, Moody's, Fitch for misleading ratings).