Canadian securities regulators have officially recognized the big three U.S. credit rating agencies, and Canada’s DBRS, as designated rating organizations under new oversight rules for rating agencies.
The Canadian Securities Administrators (CSA) announced Monday that it has officially designated DBRS Ltd., Fitch Inc., Moody’s Canada Inc., and Standard & Poor’s Rating Services (Canada) as designated rating organizations (DROs) under new rules that took effect on April 20, establishing a regulatory framework for the oversight of rating agencies.
Improving the regulatory oversight of the credit rating agencies has been one of the priorities of securities regulators in Canada, the U.S. and Europe, in the wake of the financial crisis; after they found that many investors relied too heavily on credit ratings for complex products, and that the raters themselves were largely free of regulatory supervision.
The designation orders make each of the DROs subject to regulation under applicable Canadian securities laws, the CSA says, although they have a six month transition period to fully implement all of the requirements. Once they have done so, the CSA will issue amended designation orders.
The CSA says that the four rating agencies that have been granted DRO status are also in compliance with U.S. federal securities laws that apply to rating agencies in the United States, and that the regulatory regimes are equivalent, too, imposing obligations to adhere to rules concerning conflicts of interest, governance, conduct, compliance and required filings. Earlier this year, European securities regulators also recognized Canada’s new regime as functionally equivalent, allowing Canadian ratings to continue being used in Europe.