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The premise that a correlation exists between the unregulated activities of CRAs and the recent financial market turmoil is questionable, the UK Financial Markets Law Committee says in a letter to Commissioner McCreevy responding to the Commission consultation paper.
The paper strongly implies that CRAs were not only ‘close to the origin of the problems that have arisen in the professional structured credit markets’ but were, in some way or part, responsible for the problems.
A view which regards the CRAs as responsible for the credit crunch is likely to have overlooked the limitations on the responsibilities and objectives of the Agencies themselves, the Committee makes clear.
It is important to bear in mind that a high credit rating is not intended to guarantee the market value of the issued securities, Also, a high rating today is not intended to guarantee that those assets are proof against a future decline in market value, the FMLC makes clear.
Generally, the FMLC is concerned that the consultation paper implies a misunderstanding of what CRAs actually do, and calls it a serious shortcoming that there has been no international consultation, taking in mind the international nature of the CRAs processes.
Also, FMLC complaints that there is little or no discussion of how draft legislation will fit in with existing EU legislation.