On Regulating Conflict of Interests in the Credit Rating Industry
University of Cincinnati - College of Law
May 1, 2010
New York University Journal of Legislation and Public Policy, Vol. 13, 2010
U of Cincinnati Public Law Research Paper No. 10-17
This paper discusses issues giving rise to conflict of interest concerns in the credit rating industry and examines whether and how those issues are addressed in the current regulation that builds on the guidelines of the Credit Rating Agency Reform Act of 2006, the SEC rules that were initially adopted in 2007 and recently amended in 2009, and the internal code of conducts of rating agencies. The examination leads to a conclusion that conflict of interest at the individual rating analyst level and some concerns of conflict of interest at the agency level have been largely addressed in the current regulation, but conflict of interest arising from the issuer-pay business model and influences of large subscriber clients of rating agencies remains a concern. To address this concern, the paper proposes changes to the current regulation to enhance ex-ante risk disclosure and sharpen ex-post performance reporting requirements.
Number of Pages in PDF File: 79
Keywords: credit rating agencies, conflict of interest, regulation
JEL Classification: K23, K29
Date posted: April 27, 2010
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