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09-224MR ASIC outlines improvements to regulation of credit rating agencies in Australia

Thursday 12 November 2009


ASIC has outlined changes to the regulation of credit rating agencies in Australia.

From 1 January 2010, credit rating agencies will be required to hold an Australian Financial Services (AFS) licence. Under the AFS licensing regime, general licensee obligations set out in the Corporations Act will require credit rating agencies to:
Credit rating agencies that wish to give credit ratings for investment products offered to retail investors must also comply with a general licensee obligation under the Corporations Act to have a dispute resolution system comprised of: An alternative to court actions, external dispute resolution schemes provide quick, low-cost, independent resolution of disputes between retail investors and AFS licensees up to $150,000 (increasing to $280,000 on 1 January 2012).

In addition to the general licensee obligations, ASIC will impose specially tailored conditions on AFS licences granted to credit rating agencies. These tailored licence conditions will require credit rating agencies to:
These improvements will in substantial respects align Australia’s regulation of credit rating agencies with International Organization of Securities Commissions (IOSCO) principles and with regulation passed or proposed in major markets such as the United States, Europe and Japan.

Background

Following an announcement by the Australian Government in May 2008, ASIC and Treasury conducted a review of the Australian regulatory framework for credit rating agencies.

On 13 November 2008, the Government announced that ASIC would remove an AFS licensing exemption held by credit rating agencies and require them to hold an AFS licence and that the new regime would come into force on 1 July 2009.


On 5 June 2009, Minister Sherry announced a short extension of the licensing timeframe to no later than 1 January 2010 to allow ASIC and Treasury to conduct further consultations with the CRAs and industry concerning developments in Europe and the US. On 13 August 2009 ASIC hosted a roundtable discussion involving Treasury, credit rating agencies and industry associations representing buy-side and sell-side interests.

The general licensee obligations under the Corporations Act are principles-based and designed to apply in a flexible way. For further information about general licensee obligations, see the following regulatory guides: