HK Securities Watchdog Proposes Regulation Of Rating Agencies

HK Securities Watchdog Proposes Regulation Of Rating Agencies

HONG KONG (Dow Jones)--Hong Kong's securities watchdog Monday proposed a plan to regulate credit rating agencies, following in the footsteps of regulators in major world markets.

The Securities and Futures Commission said it is seeking market feedback on a plan to create a regulatory regime to license and supervise the activities of credit rating agencies in the city, the base from which the three major multinational rating agencies do business in Asia.

The proposal, under which both the agencies and their individual analysts would be subject to licensing requirements, is intended to ensure credit rating activities are "conducted in accordance with principles of integrity, transparency, responsibility and good governance," according to the consultation paper.

The plan also aims to make sure ratings prepared in Hong Kong remain valid in other jurisdictions.

The need for enhanced supervision of credit rating agencies was raised following the global financial crisis, when some of the agencies were criticized for failing to warn investors of risks linked to complicated financial instruments.

The SFC said it hopes the new regime will come into effect by the end of January 2011 and that the process of licensing agencies and their analysts will start "almost immediately."

"Amidst the global clamor to regulate credit rating agencies, we have formulated what we consider to be a pragmatic and sensible approach for public comment," said SFC Chief Executive Martin Wheatley in a statement.

The U.S. last week passed a bill enabling the most sweeping financial overhaul since the 1930s: it empowers the government to expand oversight of hedge funds and credit-rating agencies and to create a new consumer-protection regulator, among other measures.

Japan, Australia and India have also stepped up supervision of credit ratings agencies recently.

-By Kate O'Keeffe, Dow Jones Newswires; 852-2802-7002; kathryn.okeeffe@dowjones.com