Role of Rating Agencies
AFF5230
Questions for Workshop 4 Ratings- Week 5:
Syndicate 1 1. Identify the key reasons why did the rating agencies fail? 2. CRA assign sovereign ratings to countries. Why is sovereign risk important? Why should countries care about their sovereign debt rating? Included in your description must be a definition of sovereign risk and a list of the determining factors that affect sovereign risk 3. Summarise the recent changes implemented by the Dodd Frank Act, with regards to CRA? –Caylie
The recent changes implemented by the Dodd Frank Act with regard to CRAs are as follows: * Subjecting rating agencies to oversight by the Securities and Exchange Commission (SEC). This requires more transparency in assumptions and methodologies behind producing ratings * Creating the Office of Credit Ratings. This office protects investors by overseeing the practices of NRSROs in determining credit ratings, the protection of users of credit ratings and promoting accuracy in credit ratings, including avoidance of conflicts of interest and greater disclosure. * Each NRSRO is required to designate a compliance officer, who prepares an annual report concerning changes in internal compliance and the organization’s code of ethics. * Greater disclosure regarding employee history – e.g. if a person working for the CRA has worked for the organization being rated in the past 5 years, this must be disclosed to the public. * Registration of NRSROs can be revoked if the NRSRO in question is deemed to no longer have the resources necessary to produce accurate ratings for a particular class of securities.
Syndicate2
1. The literature on rating empathises that one of the role of rating agencies is “the certification role of the agencies’ (see IMF (2010)). Explain what you understand by this certification role of CRAs.
The certification role of the credit rating agencies as mention in the 2010 IMF report states that Credit Rating Agencies have
Questions for Workshop 4 Ratings- Week 5:
Syndicate 1 1. Identify the key reasons why did the rating agencies fail? 2. CRA assign sovereign ratings to countries. Why is sovereign risk important? Why should countries care about their sovereign debt rating? Included in your description must be a definition of sovereign risk and a list of the determining factors that affect sovereign risk 3. Summarise the recent changes implemented by the Dodd Frank Act, with regards to CRA? –Caylie
The recent changes implemented by the Dodd Frank Act with regard to CRAs are as follows: * Subjecting rating agencies to oversight by the Securities and Exchange Commission (SEC). This requires more transparency in assumptions and methodologies behind producing ratings * Creating the Office of Credit Ratings. This office protects investors by overseeing the practices of NRSROs in determining credit ratings, the protection of users of credit ratings and promoting accuracy in credit ratings, including avoidance of conflicts of interest and greater disclosure. * Each NRSRO is required to designate a compliance officer, who prepares an annual report concerning changes in internal compliance and the organization’s code of ethics. * Greater disclosure regarding employee history – e.g. if a person working for the CRA has worked for the organization being rated in the past 5 years, this must be disclosed to the public. * Registration of NRSROs can be revoked if the NRSRO in question is deemed to no longer have the resources necessary to produce accurate ratings for a particular class of securities.
Syndicate2
1. The literature on rating empathises that one of the role of rating agencies is “the certification role of the agencies’ (see IMF (2010)). Explain what you understand by this certification role of CRAs.
The certification role of the credit rating agencies as mention in the 2010 IMF report states that Credit Rating Agencies have