IMA tells MPs not to ‘interfere’ with ratings agencies

Rating agencies should remain independent and should be allowed to act “free from political interference”, the Investment Management Association has said.

In its written submission to a Treasury Select Committee inquiry into credit rating agencies, the IMA said that while it conceded that agencies hold “disproportionate sway” they have made “responsible and sensible decisions”.

The association added that the fact that credit rating agencies are now regulated “may be seen as some sort of seal of approval that is at odds with the European Commission’s current desire to reduce reliance on credit ratings by both regulators and financial institutions”.

Guy Sears, director of wholesale at the IMA, said: “Rating agencies have made responsible and sensible decisions. Their recent downgrading of European countries has reflected, not caused, underlying fiscal problems.

“However, the agencies may be seen to hold disproportionate sway over global markets, not least because they are embedded in regulations such as Solvency II and CRD and in institutional client mandates.

“Actions to reduce reliance on credit ratings agencies make sense, but the reality is they will remain an important part of the financial market infrastructure for years to come.”

Ruth Lea, economic adviser to the Arbuthnot Banking Group, said she agreed with the IMA, stating that although credit rating agencies made a “big, big mistake” prior to the global financial crisis, they were right about the Southern Europe debt crises.

In January, Standard & Poor’s downgraded nine European countries, followed by Fitch, “which is actually owned by a French company”.

Ms Lea said: “I think it’s justifiable that they were downgraded. They are right dealing with Greece and the public finances of Portugal, France and Italy, as they were in a shocking state of affairs.

“On 16 January the european financial stability facility was also downgraded by S&P to AA+ and the agency had no choice but to do that.”

However, Ms Lea admits that when it comes to the crisis in 2008, there is “justifiable criticism” as ratings agencies did not flag up any concerns.

She said: “Perhaps they thought America’s market would not fail and they took a real pounding over that? They almost have in some ways been behind the curve, particularly with Greece and Portugal, as it was so obvious those countries should not have been invested in.

“If I wanted to criticise them, I would say they have been cautious but they have had their fingers burned over the mortgage backed crisis.”