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Turner Review: FSA to clampdown on credit rating agencies

The FSA is to take a supervisory role in limiting the conflicts of interest and inappropriate use of rating techniques made by credit rating agencies.

In the FSAs Turner Review published today, the regulator says it supports EU legislation being formulated to address issues relating to the proper governance and conduct of rating agencies and the management of conflict of interest.

It says CRAs will be registered and financial regulators such as the FSA will play a supervisory role, coordinated at European level via colleges to ensure that appropriate structures and procedures are in place to manage conflicts of interest and to reinforce analyst independence from commercial revenue maximising objectives.

It is also working with the International Organisation of Securities Commissions to ensure European legislation is matched by agreement of compatible global standards.

It says: This supervisory oversight should extend to requiring that rating agencies only accept rating assignments where there is a reasonable case (based on historical record and adequate transparency) for believing that a consistent rating could be produced.

While changes in regulatory policy for rating agencies have an important role to play the FSA says other factors may have a bigger influence on their use.

It says: The combination of investor wariness and higher capital requirements for trading books is highly likely to ensure that when the securitised credit market returns it will do so in a simpler form.


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