Credit reporting systems have emerged to be a key part of the financial infrastructure, playing multiple supportive roles in areas such as sustainable access to credit, financial inclusion, prudential supervision, and financial stability.
Hence, failure of the credit reporting infrastructure can significantly impact the effective functioning of credit markets and as a result impact domestic and global financial stability. Like any other activity, credit information sharing as facilitated by credit reporting service providers (CRSPs) has inherent risks and vulnerabilities. CRSPs face operational, cyber, reputation, model, regulatory, and compliance risks, among others. The adoption of innovative technologies and the use alternative data sources also increase the level of inherent risks. Further, the high levels of interconnectedness of the financial sector emphasizes the importance of effectively managing risks in credit reporting systems to avoid potential impact on the financial infrastructure.
Against this background, supervisory and regulatory authorities as well as other stakeholders in the credit reporting industry have renewed their attention to the regulation and supervision of credit reporting activities. There are vast differences in the existing frameworks across jurisdictions around the globe, however, and no global standard setting body (SSB) has as yet issued comprehensive guidance on regulating and supervising CRSPs.
The International Committee on Credit Reporting (ICCR) issued its General Principles on Credit Reporting (GPCR) to address the need to ensure sound and effective credit reporting systems. General Principle 3 on Governance and Risk Management identifies risks inherent in credit reporting activities.
At the same time, General Principle 4 on Legal and Regulatory Frameworks provides high-level guidance on what such frameworks should cover. GPCR also includes high-level recommendations for the effective oversight of credit reporting systems. Since the introduction of the GPCR, the ICCR has published additional detailed guidance on various topics to complement the general principles (ICRR 2018, 2019a, 2019b).
Despite the growing recognition of the need for them, a coherent framework and comprehensive guidance on the regulation and supervision of CRSPs do not currently exist. Building on the existing principles and guidance documents developed by the ICCR, it is believed that a globally applicable, principles-based framework for effective regulation and supervision of CRSPs would help develop the credit reporting system. These principles should define the critical elements needed for a regulatory and supervisory framework that can support a sound, efficient, and effective credit reporting system. The framework should also take into account the ongoing innovations occurring in the credit reporting environment and the risks and opportunities that could result from these changes.
The Key Principles for Effective Regulation and Supervision of Credit Reporting Service Providers paper released by the ICCR earlier this month describes the 12 principles that authorities responsible for the regulation of CRSPs should consider and the suggested approach they should adopt in applying the principles. The paper emphasizes the importance of maintaining holistic oversight of how the credit reporting system functions to ensure that the players in credit reporting activities are able to manage the risks related to credit information sharing.
A copy of the paper can be accessed here