EUROPE - Charlie McCreevy, EU commissioner for internal markets and services, has questioned the role played by credit rating agencies during the US sub-prime mortgage crisis.
Having already criticised the agencies for how slow they were in downgrading their credit ratings for structured finance backed up by sub-prime lending, McCreevy questioned the robustness of the agencies’ methodology and the thoroughness of the explanations they gave.
McCreevy said: “Potential conflicts of interest of credit rating agencies is another concern. On the one hand because they act as advisors to banks on how to structure their offerings to get the best mix of ratings. On the other, credit ratings agencies provide ratings that are widely relied upon by investors. They also concern regulators, given their importance for the calculation of banks’ capital requirements.”
He added: “What we need are clear, robust methodological rules and principles, rigorously applied, and a much deeper understanding by investors of the uses and limitations of ratings and their reliability or otherwise. The scope for conflicts of interest to influence ratings must be firmly addressed.”
In a separate development, in August 2007, Global Pensions reported that three credit rating agencies could find themselves in court if the attorney general of Ohio believes there is a case to prosecute over their part in mortgage securitisation marketing.
Marc Dann, attorney general of Ohio, has accused Fitch, Moody’s and Standard & Poor’s of leading pension funds to believe that triple A rated tranches of collateralised debt obligations (CDOs) were near risk free.
Responding to McCreevy's criticism, Frederic Drevon, team managing director for EMEA at Moody's, said the organisation supported and actively encouraged greater disclosure and transparency in the capital markets by all market participants.
He said: "Moody's is dedicated to continuing the constructive dialogue it has had with regulators and policy makers to enhance the overall understanding of the structured finance market, the various participants in that sector, and the role of ratings and rating agencies in the market."
The Pensions and Lifetime Savings Association (PLSA) has announced it will shrink its board by more than one-third as part of a governance overhaul to make it "agile and more appropriate".
Smaller FTSE 350 defined benefit (DB) schemes were nearly 15 percentage points less well-funded than larger schemes in 2017, according to a Goldman Sachs Asset Management (GSAM) analysis.
The advent of collective pension systems could help the UK avoid demographic challenges which will make it "impossible" for society to help savers in retirement, experts say.