print 28.10.2010

Credit-Rating: Draft Law ‘On Regulation of Rating Services Market’ To Be Amended Considering Opinions Of Market Players

A round table 'Regulation of Rating Services Market: What Should Be Changed?' featuring representatives of legislative and executive authorities, Ukrainian and foreign financial experts, lawyers, and investors, took place on October 27, 2010. The participants have discussed European principles of regulation of credit rating agencies, prospects for endorsement of credit ratings in the EU determined by Ukrainian rating agencies, and Draft Law ‘On State Regulation of Rating Services Market’ (registered under number 7042 of 19.8.2010).

A special guest – Thomas Missong – a President of European Association of Credit Rating Agencies (EACRA) told the conference about primary requirements for credit rating agencies in the EU set by Regulation No1060/2009 On Credit Rating Agencies. Starting from January 1, 2011 the supervisory activities over credit rating agencies will be performed at supranational level by a new regulator – European Securities and Markets Authority (EASMA), with the right to choose a matrix of employment of credit ratings for regulatory purposes retained with national regulators.

The market participants agreed that regulators in certain countries pay principal attention to the agencies’ track record before they get recognized by state authorities. A credit rating agency shall prove relevance and objectivity of its assessments for a set period of time. Thus, in order to obtain a status of recognized credit rating agency in the United States, a candidate shall prove that no less than 10 qualified investors used its ratings during no less than 3 years for making investment decisions. In Europe, according to the Basel Committee On Banking Supervision such period shall be of no less than 5 years. Supporting the Draft Law as a step towards increasing requirements to credit rating agencies that operate in Ukraine, the guests of the conference have discussed possible procedures for the agencies to confirm their track record, and risks intrinsic to the existing model of agencies’ selection without confirming their track records.

Stanislav Dubko, a Credit-Rating’s CEO in general positively evaluated qualitative changes that occurred in the rating services market since new credit rating agencies have been granted authorization from authorities, which ensured freedom of selection in providers of such services. Mr. Dubko has also stressed that ‘under competition Credit-Rating managed to considerable expand its clientele in banking and insurance sectors, notably not by lowering prices, but by its key competitive advantage – publicly available statistics of defaults that is proved by the time and the reputation of unbiased and professional agency that has been created for 9 years’. At the same time Mr. Dubko thinks that under absence of due regulator’s supervision, the institutional immaturity of new players may provoke them for choosing opportunistic business model aimed not at building a long-term reputation but at quick gaining a market share. A lure to make quick revenue and inability to cope with conflict of interests when determining credit ratings by new players may prompt emerge of ratings with eroded quality and discrediting credit ratings in the market. The representatives of the State Commission for Securities and Stock Market in Ukraine have declared a special working group headed by Alexei Petrashko, a Commission’s member, would be established, and which will engage in creating appropriate procedures for supervisory over credit rating agencies in Ukraine.

The participants of the conference have also discussed new forms of usage of credit ratings in supervision, that have been proposed in the Draft Law, stating their disagreement with the nature or ways of implementation of certain provisions. The organizers of the round table have prepared a survey of credit rating usage by regulators in 21 countries in order to suggest for employment in Ukraine the most widespread ways of regulation using credit ratings. In the course of discussion, the author of the Draft Law, a people’s deputy Alexei Plotnikov has claimed his readiness to make amendments to the Draft Law with consideration to comments of the market players.

At the end, the conference has reviewed procedures of endorsement of credit ratings for regulatory purposes, which are issued in third countries stipulated by new legislation of the European Union. Considering the fact that such procedures may be employed in Ukraine only on condition that the national principles of regulation of credit rating agencies comply with those of the EU, the participants of the conference expressed their common opinion about necessity in quick bringing Ukrainian legislation in accordance with the EU standards.

Address Of The Round Table Participants

For more information, please contact:
Information and analytic department
Sergey Rozumyak +38044490 25 50 
SRozumyak@credit-rating.com.ua 
Denis Rudenko
DRudenko@credit-rating.ua