Ratings firms to be regulated

Agencies told to improve corporate governance

China’s central bank and securities regulator have announced steps to strengthen supervision of credit-rating businesses in a bid to improve the quality of ratings.

The move comes less than a month after one of China’s big four ratings agencies was punished for violating regulations, and at a time when concerns remain high about credit risks in China.

This year has seen a rash of corporate bond defaults, including some by issuers that had been awarded relatively high ratings by domestic companies.

In a joint statement issued on Tuesday, the People’s Bank of China (PBC), the country’s central bank, and the China Securities Regulatory Commission (CSRC) listed guidelines for the ratings business to “push forward communication in the bond market, and promote the orderly development of the rating industry.”

The guidelines call for unified vetting of ratings agencies in both the interbank and exchange-traded markets.

They also are intended to consolidate and reorganize agencies, and to strengthen oversight and information-sharing among regulators.

The PBC, CSRC and the National Association of Financial Market Institutional Investors will collaborate on the review and registration processes for bond rating agencies, said the statement.

It also said that regulators can conduct supervision and inspection into credit rating agencies when necessary, including on-the-spot checks that can lead to issuances of penalties.

The regulators called on rating agencies to improve corporate governance and “guard against conflicts of interest” to help ensure the quality of their ratings.

A senior trader at an asset management firm in Shanghai said unification of ratings standards would help prevent regulatory arbitrage between the interbank and exchangetraded markets, as well as strengthen the power of regulators over agencies’ daily operations.