The IOSCO Technical Committee is promising changes to the code of conduct for credit rating agencies, and is advising firms about how to deal with the fallout from the subprime crisis.

The committee met on to review the progress being made by the Task Force on the Subprime Crisis, which was launched in Tokyo in November. It is focused on: enhanced transparency by issuers of structured products and appropriate due diligence from investors; risk management for intermediaries; valuation and accounting issues; and the roles and duties of credit rating agencies. The Task Force is due to publish its final conclusions in May.

In the meantime, the Technical Committee discussed various possible reforms to the model IOSCO Code of Conduct Fundamentals for Credit Rating Agencies including: disclosure of the assumptions underlying the individual ratings for structured finance transactions; the prohibition of advice on the design of structured products which an agency also rates; and, reasonable steps required to ensure information of sufficient quality is used to support a credible rating. IOSCO expects to produce a consultation paper by early March on proposed changes to the code.

It also outlined several steps that can be taken by market participants to help restore confidence in the market. Financial institutions are encouraged to enhance the information available to the primary market for structured finance instruments. It also said market participants should cooperate to identify information that would be relevant and useful in achieving an appropriate level of transparency in the secondary market.

Additionally, it advised that financial institutions should make accurate and complete disclosure of the size and the level of their exposures related to structured finance to the market. Finally, institutional investors and asset managers are encouraged to develop and undertake strict due diligence processes in their assessment prior to any investment into complex, structured products.