International Organisation of Securities Commissions (IOSCO)

Summary of the initiative

Name
International Organisation of Securities Commissions (IOSCO)
Objective(s)
The IOSCO Code is a disclosure mechanism to monitor compliance: credit rating agencies have to disclose how they implement the various provisions of the IOSCO Code. This approach offers a degree of flexibility to credit rating agencies, which vary considerably in size, business model, and development of the markets in which they operate. It is also designed to allow investors, issuers, regulators and other market participants to assess in each case whether a given credit rating agency has implemented the IOSCO Code to their satisfaction, and react accordingly. Further, the IOSCO Code states how credit rating agencies have to protect the quality and integrity of the rating process and independence while dealing fairly with issuers, investors and other market participants. This implies that regular updating of credit ratings is required in case of economic or other developments. The Code also states that credit rating agencies must have sufficient human resources to maintain the quality of the ratings they issue (i. e. they must have enough staff with the relevant experience and expertise). This is particularly important given the ever increasing complexity of securities markets and financial instruments. The IOSCO Code describes how credit rating agencies can improve the transparency of the rating process and the timeliness of ratings disclosure. Credit rating agencies have to publish sufficient information about their procedures, methodologies and assumptions, so that outside parties can understand how a rating was arrived at by a given credit rating agency. Credit rating agencies are required to disclose within each rating i) whether the rating was initiated by the issuer or by the credit rating agency itself and ii) whether the issuer participated in the rating assessment process (i.e. provided non-public confidential information). Finally, credit rating agencies have to describe how provisions of their own Code of Conduct are incorporated and where a Code of Conduct deviates from the IOSCO Code.

Description of the Initiative

    Sector

    Sector

    Contact Point - Commission
    FISMA B3

    Self/Co-Regulation Basic Act

    PRIVATE ACT
    Year
    2004
    Title of Act
    Code of Conduct fundamentals for credit rating agencies
    NON-LEGISLATIVE ACT
    Year
    2006
    Title of Act
    Communication from the Commission on Credit Rating Agencies, Official Journal C 59, 11/03/2006, p. 2.

    Geographical Coverage

    Global coverage
    Participating Countries
    Austria
    Other countries
    World-wide 108 member countries

    Description

    Problems that lead to the introduction of Self/Co-Regulation and the adoption of the Founding Act
    To take into account the different market, legal and regulatory circumstances in which CRAs operate, and the varying size and business models of CRAs, the manner in which the principles were to be implemented was left open. The principles contemplated that a variety of mechanisms could be used, including both market mechanisms and regulation.
    Target Group(s)
    Credit rating agencies.
    Type of Instrument(s)
    Code of conduct.
    Level(s) at which private rules should be defined and applied
    Type of Financing
    -
    Type of Monitoring
    Conduct an initial survey of compliance capacity of future regulateesConduct regular visits and spot checksInitiate complaints proceduresMaintain database of those bounded by the normsProduce regular reportsReceive complaints and verify if norms were breached or notReflexive dialogue with the - stakeholdersOther
    European Commission
    National public authority
    International public authority
    Private regulator (code owner)yes
    Private independent party with a mandate (e.g. auditors)
    Self-appointed private parties (e.g. NGOs)
    Succinct description of the type of Monitoring
    -
    Type of Enforcement
    Faming, shaming and blamingJudicial sanctionsMembership suspension/exclusionPrivate finesOther
    Private Regulator
    Private independent party with a mandate (e.g. auditors)
    Court system
    Alternative dispute resolution (ADR) / Online dispute resolution (ODR)
    Succinct description of the type of Enforcement
    -

    Downloads

    SMO self- and co-regulation database - private code 65