International Organisation of Securities Commissions (IOSCO)
Summary of the initiative
Name of Private Regulator: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.