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Research On The International Community's Regulation And Reformation Of Credit Rating Agencies

Posted on:2013-02-26Degree:DoctorType:Dissertation
Country:ChinaCandidate:X K PengFull Text:PDF
GTID:1116330371993351Subject:Constitution and Administrative Law
Abstract/Summary:PDF Full Text Request
Along with credit transaction's increasingly universal and capital market's rapidly expanding,credit rating agency (CRA) becomes more and more important for the modern international financialsystem. CRA is deemed "a license" to the capital market,"a controller" of the price of credit capital,"agatekeeper", and also "a quasi-regulator" over the market. In the global financial crisis stating fromAmerican Subprime mortgage crisis, however, all of the main credit rating agencies in the world ratedthe structured financial products improperly, which had triggered, quickened and broadened the crisiswith other important factors. After the crisis, America, European Union and other members of theinternational community have carried out the significant reforms of credit rating agencies one afteranother. Those reforms are called regulation reform to CRA because the keynote of the reforms isstrengthening the regulation to credit rating agencies worldwide. Although China's comprehensiveregulation and reformation of CRA are not formally embarked on, some competent authorities in ourgovernment have attached high attention to the key rule of CRA in the financial system. Furthermore,formulating regulation system of CRA in China has been already put into agenda at the beginning of2012. We will formulate and promulgate supporting laws and regulations, fulfill the regulation reform,and construct the system governing credit rating agencies. Moreover before then, there exists the studyon regulation and reform of CRA already.In the domain of the law, researches on the regulation and reform of CRA in internationalcommunity should mainly study the following problems. Why did CRA develop so rapidly in thehistory without any efficient regulation? What are the validity and the defect of self-regulation by CRA?What problems of credit rating agencies were exposed in this financial crisis? Why did the internationalcommunity launch the reformations of CRA to strengthen the regulation worldwide after the crisis? Is itefficient for America to strengthen the market constrains? What are the difficulties of the Europeanreformation that devotes to have the strongest regulation in the world? What are the flaws that exist inChinese regulation and reform of CRA? What enlightenments can we gain from the internationalcommunity's regulation and reformation of CRA? To what extent is the government regulation suitablefor the development of domestic credit rating market? How to construct effective regulation system ofCRA? Obviously it is very important and significant to study these problems. But nowadays the studyof these problems is not sufficient and systematic. It is the reason why the author selects the topic. Theanalysis and solutions regarding these problems constitute the theme of this paper. Based on the precedent researches and so on, using historical, comparative and empirical method, the author wouldstudy the topic from its theory to its system and practice. Following the research paradigm ofadministrative law, the paper is structured from inspecting the history and current status, reconsideringthe theory, comparing the regulation reforms and summarizing the research regarding the problems."Systematic","theoretical","empirical" and "localization" is the characteristics of the paper.The paper is composed of five chapters.The first chapter is "the historical development and mechanism of credit rating agencies". Theauthor firstly makes the statement defining the concept of credit rating, the legal features and functionsof credit rating agency, which is the basic of the paper. This chapter focuses on the research of thehistory and mechanism of CRA. Then the author discoveries that CRA mainly depended onself-regulation in its history and the reputation mechanism is traditionally appropriate for CRA toinspire and constrain itself. However, due to the faulty reputation mechanism and changed financial andlegal environment, the effectiveness of reputation mechanism has decayed day by day. It also made theincentive and restraint of market gradually weakened.The second chapter is "the ineffectiveness of credit rating agencies' reputation mechanism". Theglobal financial crisis in the early21st century is a verification of the ineffectiveness of reputationmechanism. It failed to encourage and constrain CRA in the field of rating structured financial products.The major causes of ineffectiveness in the crisis are due to the internal causes of CRA and externalenvironmental reasons. The mainly internal causes were the serious impact of interest conflicts, thedefects of rating system itself, the imperfections in credit rating agencies' internal controllingmechanism and the poor and inaccurate disclosure. The mainly external reasons were the unreasonablereliance on ratings by the investors, the absence of strong regulation and supervision on CRA, thelimited competence of the credit rating market and the lack of legal liability.The third chapter is "major contents of the international community's regulation reforms of creditrating agencies". The author expounds and analyzes the regulation reforms of CRA applied by America,European Union and other members of international community. As far as American reformation isconcerned, the paper discusses the SEC amendments and final rules in2009, as well as "Dodd-FrankWall Street Reform and Consumer Protection Act" which was passed by Congress in2010. In Europeanreformation case,"European credit rating regulation" includes endorsement and certification,corporate governance and conflicts of interest, methodologies and quality of credit ratings, disclosureand transparency, structured financial instruments and so on. In order to have a thorough knowledge ofinternational community's regulation reform of CRA, the paper also inspects the reforms ofInternational Organization of Securities Commissions, Japan, Australia and Mexico.The fourth chapter is "comparison and analysis on regulation reforms of credit rating agencies".Although the American reform and the European reform have the same purpose to strengthen theregulation of CRA and some measures in common, there is significant difference in the two. That is dueto the difference in understanding of reputation mechanism, the degree of depending on CRA, the basic of the regulation theory and the market status of CRA in different countries. For the benefit ofmaintaining the leading position of American credit rating agencies in the global market, Americanreform mainly observing the traditional self-regulation by restoring the reputation system. It issupplemented for America to compliance the loose regulation. Yet the European Union makes an effortto avoid its economic and financial damage caused by improper ratings. As a result, European reformintended to construct the strongest regulation system on CRA with the aid of "the hand of government".Finally, the paper has a conclusion that the regulation reform of CRA in European Union is moreefficient than in America.The fifth chapter is "the enlightment of regulation and reform of international credit rating agenciesto China". Allowing for the ineffectiveness of the reputation mechanism of CRA and the inefficiency ofAmerican reform, the author believes that the reform of CRA in China should give priority to strongregulation combining with the self-regulation. Firstly, the paper discusses the existing problems and thereasons about CRA in China from the perspective of administrative law. Then the paper analyses thetransformation of domestic regulation regarding CRA around the global financial crisis. Further, onpurpose of strengthening our regulation and supervision on CRA, it is very important for China toestablish the regulation system of removing the interest conflict, promoting the quality of ratingproducts and clearing the legal liability of CRA and other supporting systems. Finally, the unified,coordinated and strong regulation system of credit rating agencies should be constructed in China.
Keywords/Search Tags:credit rating, credit rating agency, reputation mechanism, regulation, reform
PDF Full Text Request
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