Global securities regulators review credit ratings’ integrity


The International Organisation of Securities Commissions (IOSCO) has reviewed observed impact of COVID-19-related government support measures (GSM) on the credit ratings of the three largest credit rating agencies (CRAs) – Fitch, Moody´s and Standard & Poor´s.

IOSCO, the global body of securities regulators with membership regulating 95 per cent of world’s securities markets, stated that there was no visible or material impact of government interventions on credit ratings.

Nigeria is a member of IOSCO Board, the governing and standard-setting organ of the international organisation. The board consists of 34 securities regulators.

In response to the COVID-19 pandemic, governments worldwide rapidly deployed fiscal, monetary, and financial support measures on an exceptional scale. Simultaneously, the pandemic-induced economic and market turmoil led to many credit ratings downgrades, bringing CRAs and their ratings under greater regulatory, industry and media focus.

The review was conducted by IOSCO´s Financial Stability Engagement Group (FSEG) and is based on publicly available information gathered from the CRAs, as well on IOSCO member expertise and analysis. To supplement the analysis, IOSCO also hosted roundtable discussions with industry participants and held bilateral discussions with each of the CRAs.

IOSCO’s report provided a summary of the observed impact of GSMs on credit ratings and credit ratings methodologies through a review of any changes made to the methodologies, their application to rating actions taken during the timeframe of the pandemic, as well as implications of the withdrawal of GSMs on credit ratings and methodologies.

The report does so across four main asset categories including sovereigns, financial institutions, non-financial corporates and structured finance.

In terms of outcomes, IOSCO observed no material changes to CRA methodologies, and that rating disclosures typically explain the impact of the GSMs where such impact was material to the rating decision.

The review noted that CRAs considered the impact of the pandemic and the economic shock in their credit ratings.

The review also suggested that GSMs played a significant role in alleviating the downward pressure on credit ratings. However, according to CRAs, the long-term effectiveness of GSMs cannot be fully assessed and measured at this stage.

Furthermore, the forward-looking assumption made by CRAs is that the GSMs will continue until the economic environment is stable enough to allow for gradual withdrawal. The risk of premature withdrawal of GSMs, especially in emerging market economies, is one of the downside risks to the global economic recovery post-pandemic.

The report concluded that as the after-effects of the COVID-19 health crisis continues to unfold into the year, it remains important to continue to consider the effects of the GSMs across credit ratings and credit rating methodologies.


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