Evaluation of the Regulations of Credit Rating Agencies in the United States and the European Community

55 Pages Posted: 8 Apr 2011 Last revised: 12 Apr 2011

See all articles by Maria Costanza Barducci

Maria Costanza Barducci

University of Pennsylvania

Timo Fest

affiliation not provided to SSRN

Date Written: April 5, 2011

Abstract

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.

Keywords: Credit Rating Agencies, Blue Sky Laws, Financial Crisis, European Regulations

JEL Classification: O51, O52

Suggested Citation

Barducci, Maria Costanza and Fest, Timo, Evaluation of the Regulations of Credit Rating Agencies in the United States and the European Community (April 5, 2011). Available at SSRN: https://ssrn.com/abstract=1803132 or http://dx.doi.org/10.2139/ssrn.1803132

Maria Costanza Barducci (Contact Author)

University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

Timo Fest

affiliation not provided to SSRN

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