MercoPress. South Atlantic News Agency

Brazil to regulate credit-rating agencies to help them improve quality of their analysis

Maria Helena Santana, president of CVM wants investors to be less risk agencies dependent

Brazil Securities and Exchange Commission, CVM, expects to have ready by the end of the year a regulatory framework for risk rating agencies with the purpose of improving the quality of their analysis, said Maria Helena Santana, president of CVM.

“Members of different industry groups will be entitled to give their opinion on the set of new rules before they are effectively implemented”, said Ms Santana who added that CVM continues to work on other proposals such as conflict of interests, transparency and an opportunity for the reports to be released.

The Brazilian government is intent in reducing foreigners’ dependency on credit rating agencies particularly when buying certain Brazilian assets, such as those with fixed income.

“This should help mitigate or attack possible conflicts of interest and improve the policy of releasing the reports”, said Ms Santana.

Risk rating agencies have been under serious criticism following the global financial crisis of 2007/08 for having under estimated risks of major investments which helped propel the US sub prime crisis and at the same time causing serious problems to other developed economies.

But in spite of the cascade of complaints and claims against the agencies, investors continue to trusts to a great extent their analysis when purchasing sovereign or corporate debt, among other financial assets.

Santana underlined that reducing investors’ dependency to the regular releases from these agencies is vital for the new CVM rules.

However CVM president assured that the rules will be most carefully drafted, mitigating the possibility that on giving up the risk agencies ratings, investors will not have the proper tools to assess, real credit, default and devolution risks of some of the investments.