Canadian Securities Administrators (CSA) proposes regulation of credit rating organizations

The Canadian Securities Administrators (CSA) has published for comment a proposed plan to introduce securities regulatory oversight of credit rating organizations.
“Many investors consider credit ratings as one of the factors in making investment decisions, and ratings continue to be referred to within securities legislation, so it is important to develop a formal regulatory regime for the oversight of credit rating organizations,” said Jean St-Gelais, chair of the CSA and president and CEO of the Autorité des marchés financiers (Québec).
“This CSA initiative is consistent with international developments in addressing the oversight of credit rating agencies, which can have a significant impact upon financial markets.”
Under the proposed National Instrument 25-101, Designated Rating Organizations, credit rating organizations would be required to apply to become a “designated rating organization” (DRO) so that their ratings might be used for various purposes within securities legislation.
Once designated, a rating organization would be required to have and enforce a code of conduct based on a code published by the International Organization of Securities Commissions (IOSCO).
A DRO would also be required to establish policies and procedures to manage conflicts of interest, prevent inappropriate use of information, appoint a compliance officer and make an annual filing.
In addition, DROs could be subject to regulatory compliance reviews and/or enforcement action. The CSA will not oversee the content or methodology of ratings.
The CSA is seeking input from all stakeholders on the proposals. The comment period is open until Oct. 25, 2010.