Status report on the work carried out by the ACT/AFP/AFTE on behalf of IGTA:

April 2005

The various initiatives to review whether the regulation of credit rating agencies might be appropriate and to devise various voluntary codes of conduct are now drawing to a close, although certain further actions at the SEC are in progress. The latest news has been from Europe where CESR (Committee of European Securities Regulators) has finalised its advice to the European Commission that regulation is not required, but that time should be allowed for the IOSCO (International Organisation of Securities Commissions) Code to be put into effect and in due course reviewed to confirm that it is working. The CESR advice is very much in line with the views put to them by the ACT and the AFTE, and indeed by most sides of the ratings industry. The advice even incorporates several phrases taken directly from the input from the treasury associations.

Early 2004: ACT/ AFP/ AFTE, working on behalf of IGTA, consult on a Code of standard practices for participants in the credit rating industry

Aug 2004: CESR calls for evidence on possible need to regulate the CRAs

Autumn 2004: IOSCO consults on possible Code for CRAs. ACT/AFP/AFTE respond fully

Late 2005/early 2005: ACT and AFTE participate extensively in the CESR process

Dec 2004: IOSCO publishes its final Code of Conduct Fundamentals for CRAs. This is available on http://www.iosco.org/pubdocs/pdf/IOSCOPD173.pdf

March 2005: ACT/AFP/AFTE, acting on behalf of IGTA, publish their final Code of standard practices for participants in the credit rating industry, slightly revised in the light of the consultation process and the publication of the IOSCO Code. The ACT/AFP/AFTE Code is available on
http://www.treasurers.org/technical/papers/resources/cspfinal_mar05.pdf

March 2005: CESR publishes its advice on CRAs to the European Commission

In both the US and Europe the authorities will definitely still be keeping an eye on things. The SEC chairman William Donaldson has stated in a speech that they have agreed with the CRAs that they will submit to a framework for voluntary oversight by the Commission. See http://www.secgov/news/testimony/ts030905whd.htm for full speech. In Europe Commissioner McCreevy is continuing to take an interest in CRAs and has stated that they remain on "watch". For full speech see http://europa.eu.int/rapid/pressReleasesAction.do?reference=SPEECH/05/199&format=HTML&aged=0&language=EN

SEC Initiatives

In the United States, the Securities and Exchange Commission voted on March 3 to issue for public comment a proposed definition of the term Nationally Recognized Statistical Rating Organization (NRSRO). This is expected to largely maintain the status quo and the SEC's reliance on market acceptance as the primary criteria for recognition. The SEC would require NRSROs to use systematic procedures designed to ensure credible and reliable ratings, manage conflicts of interest, and prevent the misuse of non public information. However, there would be no mechanism to ensure ongoing compliance. AFP will be submitting comments on the proposal when it is issued.

To address the lack of an enforcement mechanism in the SEC proposal, committees of the U.S. House of Representatives and Senate both held hearings recently to discuss whether the SEC should be granted specific regulatory authority to oversee the NRSROs. While both the House and Senate seem to believe the SEC should be granted this authority, any legislation is likely months or years away. The Associations will watch these developments closely and should be prepared to aggressively oppose any overly prescriptive regulatory regimes or attempts to dictate ratings methodology.

Next steps

The treasury associations have played a major role in the development of the IOSCO Code and the IGTA backed Code has been a crucial part of that. The next phase will be to see how the IOSCO Code works in practice and in a way this Code is now more important than the IGTA Code. However the IGTA Code includes a section on the responsibilities of issuers and this should still be publicised to members.

The Treasury Associations' members will be asked to feed back their experiences as to whether the CRAs are operating properly within the IOSCO Code, and in early 2006 the intention is to perform some targeted follow up with members to help establish if the system is working.

The ACT/AFP/AFTE will continue to follow carefully possible additional developments on the subject and will keep IGTA informed if any of these developments are of interest to treasurers.

April 2005