On The Management And Accountability Mechanism For The International Credit Rating Agencies

A subprime mortgage crisis discredited the credit rating agencies. Currently, the Europe is bogged down in the sovereign debt crisis. The main reason is that the Greece’s sovereign credit rating has been downgraded by three major U.S. credit rating agencies. The credit rating agencies are a kind of social service agency which gets capital and social credit linked. As a third-party organization, the credit rating agencies are independent, objective and specialized. Consequently, credit rating results have the characteristics of appearance and public goods. The credit rating agencies not only deal with the ratings for capital securities, borrowing enterprise credit, the relevant financial institutions and asset securitization, but also judge country’s repayment ability and desire. Based on the above analysis, it can be concluded that the credit rating agencies are of great importance in maintaining the country’s financial security. The authority of credit rating agencies directly reflects the country’s discourse power in finance, which further affects the country’s comprehensive national strength and international competitiveness. However, the credit rating agencies also possess potential risks. Therefore, to investigate the legal nature of these agencies and their rights and liabilities is of practical guiding significance. Countries are stepping up improving and building their own credit rating systems.At present, the accountability mechanism of international credit rating agencies has shortcomings. First, the three major rating agencies (Moody’s, Standard&Poor’s and Fitch) are in absolute monopoly position in the world market. Another one is that the legal nature of the rating agencies and their ratings report is not well clear. Furthermore, non-unified rating standards, lack of supervision and difficulty in relief, etc. make the credit rating get high monopoly profits. In addition, between the rating agencies and the objects rated exists fierce conflict of interest. Finally, the rating agencies are powerful but with few liabilities and the rating results they make are likely to be unfair, leading to the complete loss of warning function of rating as well as a severe blow on the rating agencies’ reputation. Accordingly, in order to reverse the situation, i.e. to reshape the credibility of the credit rating agencies and remedy their function, it is essential to reform from both internal and external, which also will remove the institutional obstacles from developing China’s credit rating industry.From the internal aspect, the legal nature of the credit rating agencies and their rating reports should be specified, and then the credit rating agencies should be regulated in terms of rights and liabilities. The above is well acknowledged, but how to define is disputed. Whatever, it is sure that the formulation and implementation of the expert liability and disclosure liability are of great significance among liabilities, because it is related to both the reputation and credibility of the rating agencies and the authority and trustworthiness of the rating reports. Meanwhile, the challenge system should be established between the rating agencies and the objects rated, and the rating analysts and rating sellers to guard against the conflict of interest and expand transparency.As to establish a sound external supervision system for the credit rating agencies, the qualification and operational capacity of the credit rating agencies need to be judged from three aspects, i.e. market access, registration, and supervision and inspection. Regarding to this, the credit rating developed countries undoubtedly need to take the first step. The financial crisis in the North America continent in2007has forced these countries to make a quick and powerful reaction. The accumulated experience and the enlarged conflict make the research results converted to be instruction manuals temporarily. However, it is inevitable that in this fast-develop process, immature and unstable factors exist. Hence, while the results are studied and used, the national conditions and the scientific rules that development obeys cannot be ignored. Moreover, a unified regulatory organization of the international credit rating agencies is proposed to be established using the operation mode of the society organizations membership as reference, i.e. managing the interest of the credit rating agencies through the rights of membership.Finally, the two-track system of accountability mechanism is proposed to be used to improve the accountability mechanism of the international credit rating agencies, i.e. upon prosecution, the domestic laws are the first choice, and meanwhile the authoritative organizations for international dispute settlement should be prepared and established. In terms of the specific contents such as arrangement and design of the system, not only should the advanced practical accomplishment achieved by other countries be studied, but also the horizon should be broadened. Then the successful experience can be invoked from adjacent industries and excellent international organizations, and the sunrise industry will show the revolution force that it is supposed to have.