Evaluation of the Regulations of Credit Rating Agencies in the United States and the European Community
Maria Costanza Barducci
University of Pennsylvania
Dr. Timo Fest
April 5, 2011
This paper focuses on the National Recognized Statistical Rating Organizations (NRSROs) and Credit Rating Agencies (CRAs) operating in Europe before and after the latest reforms. Particular attention is given to Section 15E(h) of the Securities Exchange Act of 1934, IOSCO’s Code of Conduct fundamentals for Credit Rating Agencies and Annex I of the European Regulation on Credit Rating Agencies. Within these reforms it is possible to identify and highlight three common objectives: the increase of competition amongst rating agencies, the increase of transparency, and the prevention of conflict of interest. This study begins with an analysis of the regulative history as regards NRSROs before the financial collapse of Enron and WorldCom analyzing the deficiencies in the rating system that lead to the need for revision of existing regulations. This background sets the stage for an explanation of how recent regulations set out to achieve their stated objectives by creating an efficient means of registration and surveillance. These instruments serve to increase transparency not only among rating agencies but also for investors’ desideratum to be well informed. Finally, we evaluate the change that these regulations make in the payment system as well as in the actions of participants in the agencies, the results that will be achieved because of the creation of provisions and rules that aim to establish an impartial rating agent and system.
Number of Pages in PDF File: 55
Keywords: Credit Rating Agencies, Blue Sky Laws, Financial Crisis, European Regulations
JEL Classification: O51, O52working papers series
Date posted: April 8, 2011 ; Last revised: April 12, 2011
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