Canada unveils rules for credit rating agencies

Fri Jul 16, 2010 3:58pm EDT
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By Pav Jordan and Jennifer Kwan

TORONTO (Reuters) - Canada proposed new regulations for credit rating agencies on Friday to boost investor confidence and prevent conflicts of interest that critics say may have contributed to the global credit crisis.

The new rules on agencies that assign risk ratings to corporate debt issues are the result of a pledge made by Canada and the other G20 economies to overhaul financial regulation.

At the heart of the proposals is a requirement that credit rating agencies apply to become so-called "designated rating organizations," or DROs.

The Canadian Securities Administrators (CSA), the umbrella organization for the country's 13 provincial and territorial securities watchdogs, would then require designated agencies to establish policies and procedures to manage conflicts of interest.

"Many investors consider credit ratings as one of the factors in making investment decisions, and ratings continue to be referred to within securities legislation, so it is important to develop a formal regulatory regime for the oversight of credit rating organizations," said Jean St-Gelais, chairman of the CSA.

"This CSA initiative is consistent with international developments in addressing the oversight of credit rating agencies, which can have a significant impact upon financial markets," he said in a statement posted on the CSA's website. (here)

The measures are meant to reduce the risk of conflicts of interests at credit rating agencies that are paid by the issuers whose debt they rate.

The new regulations will give Canadian regulators the authority for the first time to review and demand changes to the way agencies operate.   Continued...