Hong Kong to tighten credit rating regulation

Hong Kong to tighten credit rating regulation
By Polly Hui (AFP) – 1 day ago

HONG KONG — Hong Kong's financial watchdog on Monday proposed to tighten the monitoring of the city's credit rating agencies to meet new standards set by the European Union and other overseas jurisdictions.

The Securities and Futures Commission (SFC) said it planned to launch the regulatory regime by end of January next year, including a new licensing regime for agencies and their analysts, which currently operate in an unregulated environment.

According to the consultation document the SFC released Monday, Hong Kong-based credit rating agencies (CRAs) and their analysts would have to disclose how they assess companies and investment products to obtain a licence.

That licence could be revoked if they did not follow assessment procedures, or were found to have invested in products that they themselves had rated.

"We consider that it would be in the public interest to establish a regulatory regime to enhance investor protection and to enable credit ratings prepared by Hong Kong-based CRAs to be serviceable in other jurisdictions," Julia Leung, the city's Undersecretary for Financial Services and the Treasury, told lawmakers.

Starting in June 2011, the European Union will prohibit any credit rating issued by a non-EU agency, unless it operates within a regulatory regime that is equivalent to or as stringent as the EU regime.

Leung said the licensing system must be in place before the EU policy takes effect, adding that the United States, Japan and Australia had already announced strengthened regulation of CRAs in recent months.

Stephen Tisdall, senior director of intermediaries licensing and conduct at the SFC, said the proposed regime was more stringent than other jurisdictions, which do not require rating analysts to be licensed.

Revoking an analyst's licence "would create problems for him going to other jurisdictions even within the same organisation," Tisdall added.

To smooth the transition, the SFC proposed that existing rating analysts would only be required to take a refresher course on local regulations, while newcomers to the profession will have to sit a regulatory exam to obtain a licence.

The global financial crisis shone a light on the failure of many CRAs to fully consider -- and highlight -- the inherent risks of complicated financial instruments for investors as market conditions deteriorated.

At present, there are three global credit rating agencies -- Fitch, Moody's and Standard & Poor's -- and three smaller multinational CRAs with operations in Hong Kong.

"It is clear that these CRAs have accepted, as inevitable, the global move to more rigorously regulate them," the SFC said in a paper submitted to the city's legislature.

Fitch group, the DBS Constelation rating agency :
http://minibondsoctaveconstellation.blogspot.com/2009/09/fitch-group-constellation-rating-firm.html

Fitch launch derivative group in Singapore (for DBS and other banks such as HSBC in issuing high risk structure products)
http://minibondsoctaveconstellation.blogspot.com/2009/09/fitch-ratings-launches-new-rating.html