The International Organization of Securities Commission is publishing its Code of Conduct Fundamentals for Credit Rating Agencies. The release of the IOSCO CRA Code Fundamentals follows an extensive consultation process involving rating agencies, issuers, investors, academics and financial institutions.

CRAs can use the code to protect their analytical independence, eliminate or manage conflicts of interest, and help ensure the confidentiality of certain types of information shared with them by issuers, says IOSCO, which expects the code will receive the full support of CRAs and market participants around the world and will strengthen investor and market confidence in the rating process.

Central to the code is a disclosure mechanism that IOSCO believes will promote compliance with the spirit and intent of each of its provisions. The code obliges CRAs not only to incorporate its provisions into their own codes of conduct, but also to
explain how each provision is addressed.

If a particular provision of the code is not incorporated into the CRA’s own code of conduct, the CRA is expected to disclose this fact, explain why it has not incorporated the relevant provision, and how the objectives of that provision are otherwise addressed. Market participants will then be able to judge for themselves whether each CRA has implemented the code satisfactorily and react accordingly.

The release of the code follows an extensive public consultation process that took place after a draft of the documents was published in October 2004. IOSCO received approximately 40 submissions from a wide range of market participants including ratings agencies, financial institutions and individual investors from around the world.