The Committee of European Securities Regulators today published its first report examining the credit rating agencies’ compliance with the IOSCO code of conduct, finding room for improvement in certain areas.

The report, published for the European Commission analyzes the codes of the four credit rating agencies (CRAs) that have chosen to adhere to the voluntary framework (Moody’s, Standard and Poors’, Fitch Ratings and Dominion Bond Rating Service t) in relation to the IOSCO Code. The CESR says it considers that the CRAs codes comply to a large extent with the IOSCO Code.

There are however some areas or provisions where the CRAs codes do not comply, it notes. “Some of these are of minor importance, because the CRAs acheive the desired outcome that the IOSCO Code aims at, without formally having provisions in their codes that mirror the IOSCO Code,” it says. “There are however some areas, highlighted in the last section of the report and mostly coincident with those pointed out by market participants, where the deviations are of greater importance.”

Some of these larger issues are common to all four CRAs, and some of them are specific to individual CRAs. “In particular, the area where all the CRAs seem to have difficulties in complying with the IOSCO Code relates to the separation between the rating service and the ancillary services provided by the CRAs and the disclosure of unsolicited ratings,” it notes.

“Consequently, CESR considers that there is still room for improvement in the areas identified (either in specific cases or generally) and intends to look particularly into these issues in its review for 2007 to see whether there have been improvements,” it adds.

The CESR also notes that IOSCO has set up a task force that is examining the codes of conduct released by CRAs of all sizes and jurisdictions in response to the IOSCO Code, to determine whether any trends exist with regard to non-compliance or consistent variations in interpretation by CRAs of what constitutes compliance. IOSCO also expects to publish its report in January.

“CESR expects that its main findings about the codes of the four CRAs, which is the object of this report, are consistent with the IOSCO work. However, IOSCO has not yet finalised its paper, so it is not possible to assess with certainty the exact differences between the reports. So far, it is likely that only in-substantive differences between the conclusions of the two reports will arise, due to the different methodologies used to produce them,” it says.