Ratings agencies reined in
Legislators have approved new laws to regulate credit ratings companies, and to ensure that they become more accountable and transparent.
The Credit Rating Services Bill, adopted by the National Assembly in Cape Town yesterday, requires ratings companies to be registered with the Financial Services Board to ensure that they have the necessary knowledge and experience to issue credit assessments.
“We require credit ratings agencies to have certainty, consistency, a clear legislative framework and above all harmonisation of our legislation with international standards,” Finance Minister Pravin Gordhan told legislators.
“We must dismiss any idea that credit ratings agencies will have their independence interfered with. What this legislation does is ensure we have proper accountability to an independent regulator.”
Standard & Poor’s, Moody’s Investors Service and Fitch Ratings are among the ratings companies that operate in South Africa.
Most of the main shortcomings identified in an initial draft of the law had been addressed, said Tim Harris, a legislator for the Democratic Alliance, which voted in favour of the legislation.
“We managed to take out clauses that would have prevented credit ratings agencies from limiting their own liability through individual contracts,” he said.
“We made significant progress in limiting the power of the registrar. The legislation is now definitely in better shape.”
Gordhan dismissed Harris’ concern that a clause in the law suggested that all credit ratings produced offshore for use in South Africa needed local endorsement.
“What we are saying is if you are using a rating that is provided by an agency that is outside of the geography of South Africa, that agency must be registered with the Financial Services Board,” Gordhan said.
Standard & Poor’s and Moody’s have lowered their ratings on South Africa’s sovereign debt since September 27, citing an increase in political risk after strikes in the mining and transport industries.
Standard & Poor’s rates South African debt at BBB, one level lower than Moody’s.
On October 25, Gordhan rejected the downgrades as unwarranted and premature.
The National Assembly delayed a planned vote on the Financial Markets Bill – which will establish a regulatory framework for unlisted securities, require derivatives to be traded through clearing houses and introduce additional measures to combat insider trading – until November 6.
“Monitoring every derivative is a difficult task,” Gordhan said.
“Part of the objective in this legislation and globally is to make as transparent as possible the trade in derivatives.”