This report describes the second and final stage of thematic review focused on the action plans developed by national authorities to implement the FSB 2012 roadmap for reducing reliance on CRA ratings.
Reducing Reliance on Credit Ratings
The global financial crisis highlighted widespread problems with risk management at financial institutions. One of the key issues highlighted post-crisis has been overreliance on ratings provided by credit ratings agencies (CRA) at the expense of effective in-house analysis of credit risk. This issue was compounded by flaws in the incentive structures for ratings agencies that were highlighted by the global financial crisis.
In October 2010 the FSB published Principles for Reducing Reliance on CRA Ratings. The goal of the FSB Principles is to end mechanistic reliance on CRA ratings by banks, institutional investors and other market participants by reducing the “hard wiring” of CRA ratings in standards, laws and regulations and by providing incentives for firms to develop their own capacity for credit risk assessment and due diligence.
The FSB Principles recognise that CRAs play an important role and their ratings can appropriately be used as an input to firms’ internal credit assessment processes. But any use of CRA ratings by a firm should not be mechanistic nor lessen a firm’s responsibility to ensure that its credit exposures are based on sound risk assessments. The Principles proceed from the basis that financial institutions should not invest in credits without conducting their own due diligence. At the same time, this does not imply that market participants should avoid all use of credit ratings, as long as they combine the use with exercise of their own judgement.
Key Documents
12 May 2014
29 August 2013
This report summarises the main findings and recommendations of the interim peer review and updates on IOSCO’s work to improve transparency and competition among CRAs.
29 August 2013
The interim report includes a structured stock-taking of references to CRA ratings in national authorities’ laws and regulations and of actions taken and underway to reduce those references.
5 November 2012
The roadmap sets clear timelines for concrete action to reduce mechanistic reliance on CRA ratings and for authorities to promote and strengthen own credit risk assessment approaches.
27 October 2010
The FSB has drawn up the following principles to reduce reliance on CRA ratings in standards, laws and regulations.
