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Credit rating agencies' code of conduct: Rating for Godot

A code of conduct for credit rating agencies does nothing to deal with their inherent conflicts of interest.

Last month, the International Organization of Securities Commissions’ task force reviewed its work on the implementation of a code of conduct for credit rating agencies.

The interminable wait for a proper solution to the rating agency problem risks becoming futile.

Even if no one else does, the task force itself believes it is good news that Fitch, Moody’s and Standard & Poor’s – and four other agencies – have largely implemented its code.

"This is an encouraging sign that all CRAs, regardless of size and methodologies, are more aware of the concerns surrounding the credit rating industry and are taking steps to address these concerns," Iosco argues. It also thinks that its assessment of the extent of rating agencies’ adherence to the code will help investors take a better judgement of the worthiness of ratings.

Iosco ignores the possibility that the agencies have only adopted these new rules because they will do nothing to change the deeply flawed way the agencies do business.

Iosco’s code was revised in 2008, largely to reflect concern about inadequate ratings in structured finance. There were various worthy stipulations that address corporate governance issues. Yet these fail to address the more fundamental problems.

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