FSB published principles for reducing reliance on CRA ratings
28 October 2010
The principles aim to catalyse a significant change in existing practices, to end mechanistic reliance by market participants and establish stronger internal credit risk assessment practices instead.
They set out broad objectives, for standard setters and regulators to follow up by defining the more specific actions that will be needed to implement the changes over time.
Reducing reliance on CRA ratings in standards, laws and regulations
· Standard setters and authorities should assess references to credit rating agency (CRA) ratings in standards, laws and regulations and, wherever possible, remove them or replace them by suitable alternative standards of creditworthiness.
· References to CRA ratings should be removed or replaced only once alternative provisions in laws and regulations have been identified and can safely be implemented.
· It is particularly pressing to remove or replace such references where they lead to mechanistic responses by market participants.
· Standard setters and authorities should develop alternative definitions of creditworthiness and market participants should enhance their risk management capabilities as appropriate to enable these alternative provisions to be introduced.
· Standard setters and authorities should develop transition plans and timetables to enable the removal or replacement of references to CRA ratings wherever possible and the associated enhancement in risk management capabilities to be safely introduced.
© Financial Stability Board
