Research houses van Eyk and Standard & Poors have said that the Government’s new reforms to increase the accountability in the financial services sector will have no impact on the way the firms actually conduct their ratings.
The changes, announced last Thursday, will require credit ratings agencies and research houses to be licensed as financial service providers, and to report annually to the Australian Securities and Investments Commission.
van Eyk and the research arm of Standard & Poor’s have said that they already possess an Australian financial services licence, and regularly report to ASIC. Anna Smith, general counsel and company secretary at van Eyk, said that the new disclosure rules might require an additional yearly report to ASIC, the detail of which was not yet clear, but the reform was “a step in the right direction”, and would “put everyone on equal footing”.
“[The new rules] are a good thing that will make research houses look more closely at what they publish,” she said. “I think it is putting research houses on notice that they need to be more careful about the ratings that they do apply.”
Super fund ratings house, SuperRatings, has also long had an AFSL, but has not yet been required to report to ASIC. “We have an internal compliance policy, and can report to ASIC it they want us to,” managing director, Jeff Bresnahan said.
The reform will have greater consequences for credit ratings agencies, such as Moody’s, Fitch, and the credit rating department of S&P, which it is understood are not currently licensed financial service providers. John Bailey, Managing Director Standard & Poor’s Australia & New Zealand, said that S&P intended to cooperate fully in obtaining a licence and meeting the reporting requirements for the credit rating, but without detail on the transition arrangements to the licence regime, he could not comment further on the impact on the business at this stage.
The reforms will also target the conflicts of interest that arise in a system where funds mangers have tended to pay for their own ratings. “In terms of compliance reporting, for the first time rating agencies will have to reporton issues such as the quality and integrity of their ratings processes, on conflicts of interest, their responsibilities to the investing public and issuers, and a range of other checks and balances,” Sherry said.
van Eyk’s research is not paid for by funds managers; it is bought by financial planners. SuperRatings recently changed its model to charge the funds it rates, but Bresnahan said potential conflicts of interest was an issue the company was very conscious of and continued to manage.