GLOBAL - Investors have backed calls for the reform of credit ratings agencies (CRAs), a survey by the CFA Institute has found.
Charles Cronin, head of CFA Institute Centre EMEA, said: "These results are disturbing, they point to serious deficiencies in professional conduct at CRAs.
He said CRAs needed to take prompt action to manage or eliminate conflicts of interest in the ratings business. "Reputations take years to build and moments to shatter. I hope that on the back of this data that the CRAs will redouble their efforts to restore confidence in the professionalism of their business."
Over half (55%) of respondents said CRAs should form an international standard-setting and monitoring body.
Just under half (47%) supported calls for a different set of ratings symbols for structured products as the credit crunch had shown individual products performed differently and had different risks of default compared to traditional corporate bonds.
"Default on structured debt is dependent on hundreds or thousands of individual defaults that are estimated given some distribution. They are not the same analysis so they should not be the same ratings."
"We feel that a different rating scale is an essential aid to trustees and fiduciaries, to help them evaluate and quantify the amount of structured product exposure they desire in their portfolios," said Cronin.
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