The International Organization of Securities Commissions (IOSCO) has published a Consultation Report along with a related press release that covers good practices on reducing reliance on credit rating agencies (CRAs) in asset management (CR04/14).
The objective of CR04/14 is to gather the views and practices of investment managers and institutional investors to help develop a set of good practices when dealing with the issue of over reliance on external credit rating within asset management. CR04/14 lists some examples of good practices which include:
- investment managers make their own determinations as to the credit quality of a financial instrument before investing and throughout the holding period;
- regulators could encourage investment managers to review their disclosures describing alternative sources of credit information in addition to external credit ratings;
- regulators could encourage investment managers to disclose the use of external credit ratings and describe, in an understandable way, how these complement or are used with the manager’s own internal credit assessment methods; and
- where external credit ratings are used, investment managers understand the methodologies, parameters and the basis on which an opinion of a CRA was produced, and have adequate means and expertise to identify the limitations of the methodology and assumptions used to form that opinion.
The consultation closes on 5 September 2014.