Credit Bill released for public comment

Friday, August 5, 2011

Pretoria - Cabinet has approved the release of the Credit Ratings Services Bill that is aimed at ensuring that South African authorities can work with their international counterparts to ensure responsible and accountable credit rating agencies at a global level.

In a statement on Thursday, National Treasury said Cabinet has approved the release of bill for public comment.

Credit ratings agencies (such as Moodys) are important actors in financial markets and are designed to play a critical role in providing independent advice to investors including on sovereign debt. By providing the market with independent, consistent, easy-to-use measures of credit risk, these rating agencies reduce the costs of investment and enhance market efficiency.

At the time of the global economic meltdown, weaknesses in the way rating agencies rated particularly "sub-prime" securitised instruments highlighted the need to re-examine the way they operate, seeing as though such agencies were not appropriately regulated.

Given that global financial institutions and institutional investors rely heavily on external ratings, ratings should be constructed in an independent and transparent manner.

"As these agencies operate at a global level, it became clear a global response was required. As a result, the G20 jointly committed to regulating these agencies. Introducing a regulatory framework for credit ratings agencies is thus one of South Africa's G20 commitments," said Treasury.

Treasury said the release of the bill seeks to align the South African regulation of credit rating agencies with international best standards and practice, including the International Organisation of Securities Commissions Principles.

The bill also aims to improve investor protection, improve the efficiency and transparency of financial markets, as well as reduce systematic risk.

While inviting comments on the bill, Treasury also said that a workshop on the matter will be held sometime in August.

Written comments should be sent to Roy Havemann at financial.policy@treasury.gov.za or faxed to 012 315 5206 on or before 5 September 2011. Those who wish to participate in the workshop should also send their details to the same address by 12 August.

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