New law to regulate rating agencies
Government gave notice that the Treasury would be tabling legislation to govern credit-rating agencies in South Africa.
According to Business Report, Finance Minister Pravin Gordhan would pilot the legislation through Parliament but Cabinet has already given its nod to the Credit Rating Services Bill.
Economists.co.za director Mike Schussler said that if the legislation was intended to make credit agencies like Moody’s Investors Service or Fitch fearful of issuing negative ratings, “it would be very disadvantageous”.
Treasury deputy director-general Ismail Momoniat said the legislation followed similar legislation in the European Union regulating rating agencies, which had previously been unregulated.
He cited the example of agencies that had given triple-A ratings to financial institutions, failing to warn clients of the dangers of US subprime mortgages in 2007 and 2008.
However, Momoniat said it was not the Treasury’s intention to regulate “how they rate government agencies or the private sector”.
The intention behind the legislation – which would be made available this week – would be to ensure that systems “are fair” and the agencies did their work transparently.