The Financial Stability Board (FSB) has published a final peer review report on national authorities’ implementation of its principles for reducing reliance on credit rating agency (CRA) ratings (the Principles).
In October 2012, the FSB agreed a roadmap which set out milestones for work to be conducted by national authorities to reduce mechanistic reliance on CRA ratings in standards, laws and regulations, and to promote and, where needed, require that financial institutions strengthen and disclose information on their own credit assessment approaches.
As follow up, the FSB conducted a peer review of national authorities’ implementation of the Principles. The peer review report discusses the FSB’s findings during its review. Key findings include:
- that approaches to reduce reliance on CRA ratings vary across jurisdictions and financial sectors;
- progress towards the removal of references to CRA ratings from standards, laws and regulation has been uneven across the financial sectors. Reliance on such ratings persist, particularly in private contracts, investment mandates, internal limits and collateral agreements; and
- while good progress has been made towards removing references to CRA ratings from laws and regulations, mechanistic reliance can also come from market practices and contracts. Authorities should encourage market participants to review provisions within their private contracts which represent mechanistic reliance on CRA ratings.
The peer review report sets out some practices that may assist national authorities in refining their action plans and several recommendations to address some of the challenges hindering progress toward implementing the roadmap.