Research On The Conflicts Of Interest Of Credit Rating Agencies In China

Credit rating agencies play an important role in recognizing and preventing the credit risk of financial markets, however,any potential or real conflicts of interest facing by credit rating agencies have undermined this role. In China,there are still several problems about the legal regulation of the credit rating agencies to be solved. First of all, the types are not adequately enough to cover all conflicts of interest,for example,the conflicts rooted in the issuer-paid model was not contained in; Secondly, legal regulating measures on conflicts of interest are too simple, just relying on traditional measures such as "ban"or"avoidance", "disclosure" as a effective measure yet gets not much concern from regulatory institutions; what’s more, internal control about conflicts of interest isn’t integrity, which highlights the function of firewall system too much; lastly, The legal accountability of credit rating agencies still needs to be strengthened. In addition, the self-discipline management of credit rating agencies is not perfect, lacking of reputation mechanism’ binding effect.This thesis tries to define conflicts of interest of the credit rating agencies, clarify the major forms of conflicts of interest, therefore concluds that the conflicts of interest are deeply rooted in the issuer-paid model, and puts forward a number of alternatives to dissolve such kind of conflicts of interest, but finally find that the alternatives are not practicable at all, and the most effective measures dealing with the conflicts of interest which coming from issuer-paid model is to take "control"/’disclosure"/’prohibition" and "legal accountability" in all.Furthermore,by combing and analyzing the regulation paradigm about the conflicts of interest of credit rating agency from the EU and the United States,the thesis discovers such regulation paradigm primarily organized around those four measures.First,in terms of internal control,the regulatory norms require the credit rating agencies to set up independent director and compliance department properly so as to exercise the supervisory function,to set up firewall so as to separate sensitive business and personnel,and to establish appropriate conduct rules so as to make the credit rating agencies and the relevant personnel conform with the requirements; Second,in terms of information disclosure, the regulatory norms make it sure for the credit rating agencies which information about conflicts of interest should disclose,by generalizing the principles and listing the key pionts,and also provides rules of recording and keeping information,in order to safeguard the effectiveness of information disclosure. Finally, in terms of legal accountability,the credit rating agencies are asked to bear "professional responsibility" to the investors, and the subjective mental state of which discribed as "intentionally or recklessly" has standards to identify. All in all,synthesizing the above extraterritorial law experience, combined with the practical development of credit rating agencies in China,the thesis presents consummated suggests abont China’s legal regulation of conflicts of interest of the credit rating agencies in internal control,information disclosure,legal accountability and so on.