In a move that highlights the difficulty of regulating ratings agencies, Standard & Poor’s has joined Moody’s in withdrawing its application to supply ratings of corporate bonds and other debt-based securities to retail investors in Australia, after the Australian Securities and Investments Commission announced new rules this month.

The rules, which will take effect Jan. 1, are intended to improve the management of risk and conflicts of interest at the ratings agencies, as well as increase transparency.  But a clause that requires them to resolve disputes with retail investors through a financial ombudsman is one reason Standard & Poor’s is citing for withdrawing from the market, where it is among the three major agencies, alongside Moody’s and Fitch.

The impact of the moves by Moody’s and S.&P. was not immediately clear. The retail bond market in Australia is not as large as the wholesale market of institutional investors, for which S.&P. is still applying for a license. It is unlikely S.&P. would cut jobs as a result of its decision to leave the retail market. S.&P. said in a separate statement Thursday that, while it was withdrawing from the retail credit-rating market, its services to rate funds for retail investors based on how they manage assets would still be available.

The decision by Moody’s and S.&P. to curtail their operations in Australia highlights the larger issue of how far governments can strengthen regulations before ratings agencies and others simply walk away, continuing to operate in more lenient jurisdictions.    Source: Press Coverage

BIIA Newsletter January 2010 Issue