Rating agencies perturbed by bill
CAPE TOWN — Moody’s and Standard & Poor’s have criticised SA’s proposals to regulate the industry as too onerous.
The credit rating agencies object to the endorsement regime proposed in the Credit Rating Services Bill. Konrad Reuss, MD of Standard & Poor’s in SA, said the proposal would give rise to uncertainty and effectively promote double supervision.
“It would require a registered rating agency to demonstrate that the third-country credit rating agency conducts its activities in compliance with requirements that are ‘ equivalent’ to certain specifications under the bill.
“Endorsement will be extremely difficult as detailed compliance by the third-country credit rating agency may be difficult to ascertain, monitor and enforce by the South African agency,” Mr Reuss said.
Failure to do so would mean that “the range of debt instruments available to South African investors who use credit ratings for regulatory purposes will be materially limited”.
Moody’s was also concerned that the bill should not introduce regulatory confusion for agencies belonging to the same group.
While the bill recognised credit rating agencies that belonged to the same group, it nevertheless “creates overlapping regulatory responsibilities for external credit rating agencies and regulatory confusion for credit rating agencies belonging to the same group. The risk of double regulation should be avoided,” it urged.
Democratic Alliance spokesman on finance Tim Harris said the committee would have to fix the bill before adopting it.
“If we do not amend several provisions of the law we risk compromising the amount and quality of credit ratings available in SA,” he warned.
“In particular, we will have to consider a revised mechanism for establishing the equivalence of global credit ratings rather than the proposed endorsement framework that would impose unnecessary and burdensome regulatory requirements on the rating agencies.”
The committee also heard submissions on the Financial Markets Bill.