S&P President Calls for International Oversight of Credit Rating Agencies

Standard & Poor’s President Deven Sharma has issued a call for a globally coordinated approach to the oversight of credit rating agencies, in order to ensure consistency for investors and issuers operating in international markets.

Sharma, speaking in London at the 2008 S&P European Insurance Symposium, stated: “We must focus on preserving a consistent approach across borders. A coordinated response from policymakers and a common approach to overseeing ratings firms — along the lines proposed by the European Union’s ECOFIN, the Financial Stability Forum and IOSCO — would be in the best interests of international users of ratings.

“We welcome any initiative that works in the interests of the market as a whole, preserves the independence and global consistency of ratings opinions and rating methodologies, and avoids unintended disruption, costs and inefficiencies for investors, issuers and other users of ratings.”

In his address Sharma added that any European regulatory initiative should therefore:
— focus on the integrity and transparency of the rating process
— not seek to determine the content of ratings and methodologies, or become involved in reviewing individual ratings, as that would risk limiting market innovation, call into question the independence of ratings, and potentially create moral hazard as overseers may be perceived to endorse ratings opinions.

Sharma said much good work has already been done, particularly by the EU’s ECOFIN, by the Financial Stability Forum on behalf of the G8 and by IOSCO representing global securities regulators, in developing a coordinated approach globally to restoring confidence in capital markets.

He added that it is critical that this effort continues and that we see a considered and consistent response by authorities around the world to recent events. Investments and capital flows are more global than ever — and this trend will only accelerate — so investors need common measures of assessing risk across the world’s various markets.

“The global market will be best served by a consistent international approach to enhancing transparency, including a common framework for addressing credit ratings,” he stressed. “Consistency of approach is vital for cross-border investors and other global credit providers. It supports their ability to assess credit risk on a like-for-like basis across markets, sectors and asset classes. And it helps issuers in local markets raise capital and compete internationally on an even basis with their global peers. To accomplish this will require greater dialogue among all market participants, policymakers and regulators.

“We look forward to contributing, along with other market participants, to appropriate market consultation on the details and practicalities of any new supervisory framework in Europe. Our aim is to arrive at a solution that serves the global capital markets well and the billions who benefit from them.”

Source: Standard & Poor’s – http://www.standardandpoors.com.