On 24 October 2022, the FCA published a Dear CEO letter addressing thematic findings on the effectiveness of governance in credit rating agencies (CRAs). The letter has been sent out to all UK registered CRAs, with the FCA stating that it expects these firms to consider the risks outlined and act where necessary.
The letter provides feedback on common findings from FCA governance reviews of registered CRAs and the FCA’s wider supervisory work across the portfolio.
In the letter, the FCA states that, overall, it was clear that multiple CRAs can do more to benefit from the value that a well-functioning Board can bring to the strategic direction and oversight of an organisation. In the FCA’s view, strong Board governance, clear Board-level accountability and independent challenges are essential to ensure that organisations deliver independent ratings free from conflicts of interest. The FCA believes that there are gaps in this respect at some CRAs.
The letter goes on to set out a number of specific risks that the FCA has identified for CRAs, their senior leadership and their Boards to consider, under the following headings: (i) purpose of the Board; (ii) composition of the Board; (iii) role of INEDs; and (iv) how the Board operates.
In terms of next steps, following the findings in the letter, the FCA requests all CRAs to provide it with a Board-approved summary of their assessment of key risks relating to governance and details of action plans, including timescales, by 30 January 2023. Firms should identify the member of their senior management team who will oversee the provision of this and the implementation of its action plans and notify the FCA of this contact person by 11 November 2022.
The FCA states that, as part of its ongoing supervisory focus on governance and oversight, it will continue to engage with CRAs and their Boards. Where individual firms fall short of FCA expectations, fail to consider FCA feedback or are making insufficient progress, the FCA will consider the full range of supervisory responses and enforcement powers at its disposal.