The Financial Services Board announced that the first credit rating agencies to apply for registration under the Credit Rating Services Act have had their applications approved.
The agencies are Global Credit Rating Co. Ltd and Fitch Southern Africa Ltd.
Applications for registration have also been received from Standard and Poor’s and Moody’s Investors Service and these will be processed early in 2014. They will be permitted to continue to provide credit ratings until their applications are finalised, the FSB said.
An important requirement of the Act is that for a credit rating agency to be able to continue issuing ratings in South Africa, it is obliged to seek regulatory approval of its application for registration by 17 December 2013.
The Act was introduced in South Africa in response to the shortcomings identified during the financial crisis, where the G-20 group of nations committed to creating a globally-consistent regulatory framework for the credit rating industry. As a member and signatory of the G-20, South Africa passed and promulgated the Act which came into force on 14 January 2013. This Act ensures that registered credit rating agencies will work within the regulatory requirements of South Africa which are in line with international standards.
The object of the legislation is to foster responsible and accountable credit rating agencies, protecting the integrity, transparency and reliability of the credit rating process and published ratings and help reduce systemic risk in financial markets.
As at end October 2013, over 600 credit ratings were published by the various agencies operating in the Republic. It is recognised that rating agencies can increase the systemic risk of financial markets through unanticipated and abrupt rating action. Such ratings crises have the potential to lead to large market disruptions and have knock-on effects on a number of systemically important market participants.
