Switzerland publishes action plan on rating agencies
Bern, 13.05.2014 - Switzerland has published an action plan on reducing reliance on credit rating agencies (CRAs). As illustrated by the financial crisis, over-reliance on ratings can pose risks to financial stability. The aim of the action plan is to mitigate these risks and thus implement the corresponding Financial Stability Board (FSB) principles.
The use of CRA ratings in regulations and contracts of the financial sector can result in automatic and excessive market reactions to rating changes. As was shown by the financial crisis, this presents risks to financial stability. For this reason, the FSB published a set of principles for reducing reliance on ratings in 2010 and launched a peer review on their implementation in 2013. The objective of the initiative is not, however, to prevent the use of CRA ratings in general. After all, ratings are a valuable source of information, not least for small market participants with limited ability to perform their own analyses.
As an FSB member, Switzerland also took part in the peer review. Only few references to ratings have been found in Swiss laws and regulations, most of which are the result of international standards such as the capital adequacy requirements of the Basel Committee on Banking Supervision ("Basel III"). Therefore, in order to reduce reliance on ratings, international standards for financial market regulation must be adapted and alternatives to CRA ratings must be developed above all. The Swiss action plan foresees an active involvement in the relevant international bodies on these issues.
At a national level, the plan is not to undertake a broad legislative revision, but rather individual specific regulatory steps. For instance, references to CRA ratings will be removed from the FINMA Collective Investment Schemes Ordinance. Furthermore, updated disclosure requirements within banking regulation will facilitate credit assessment for market participants. Ultimately, the Swiss authorities will engage in a dialogue with financial market participants - by way of workshops, for instance - to exchange experience and knowledge on alternatives to CRA ratings and to raise awareness of possible risks.
Address for enquiries
Mario Tuor, Head of Communications, State Secretariat for International Financial Matters
Tel. +41 58 462 46 16, mario.tuor@sif.admin.ch
Publisher
Federal Department of Finance
https://www.efd.admin.ch/efd/en/home.html
