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Guaranteeing the quality of information used to assign credit ratings on structured finance securities would be “overly burdensome and redundant”, several leading ratings agencies have told regulators.
The comments come as financial regulators are drawing up a new code of conduct for the industry, which is facing calls for tougher supervision after mortgage-linked securities awarded high credit ratings have suffered heavy losses.
Critics say credit ratings agencies, which are paid by the issuers whose securities they rate, failed to act quickly enough to warn investors about the risks of investing in complex securities. They have also accused the agencies of a lack of due diligence to ensure the accuracy of information provided by issuers.
Ratings agencies have countered that, in many cases, mortgage lenders provided unreliable information and initial ratings assumptions were inaccurate as a result. Many borrowers inflated their income to qualify for loans, while others claimed investment properties were primary residences.
Five credit ratings agencies, including Fitch Ratings, Moody’s Investors Service and Standard & Poor’s, have written to regulators to clarify whether the proposed guidelines require agencies to carry out due diligence to verify first-hand the quality of the information used to assign ratings.
“Such an obligation would be not only infeasible, but also inconsistent with [credit ratings agencies’] role in the financial markets,” they wrote in a letter to regulators on Friday, citing the hundreds of thousands of ratings the agencies assign globally.
The letter to the International Organisation of Securities Commissions, the umbrella group for global securities regulators, is one of 30 responses sent to regulators, who are due to issue a final report in May.
By: By Joanna Chung and Saskia Scholtes