FCA has published a portfolio letter setting out the risks of harm in the credit rating agency sector, and its regulatory expectations. This is the first of its letters aimed at the sector, which it supervises under the onshored EU Credit Rating Agencies Regulation.
Among the key points raised are:
- FCA expects all CRAs to have a sound governance and oversight framework;
- regardless of who is paying the CRA, they must be able to show how they manage conflicts;
- CRAs must be able to show they have considered how to manage risks of activities outside the regulatory perimeter;
- addressing weaknesses in rating methodologies must be a priority;
- firms must keep an eye on the impact of insourcing aspects of the rating process to affiliated entities and/or outsourcing to third party providers; and
- that FCA is keen to extend the SMCR to the sector.