Credit Rating Agencies and Conflicts of Interest: Comparative Study of the Post-Credit Crisis Regulatory Reforms

Abstract

When things go wrong, it is always good to find someone to blame. As the credit crisis started to unfold in 2007, credit rating agencies (“CRAs”) emerged as the villain – or scapegoat, one might say – for commentators and regulators alike. To sum up, observers accused CRAs of doing a poor job assessing complex structured products, which contributed to the crisis, especially because these products made investors extremely dependent on ratings. In particular, conflicts of interest have been seen as one of the main factors, if not the main one, why CRAs failed. To address these concerns, the United States and the European Union put forward a number of reform initiatives. These initiatives vary in their scope but they all seek to enhance the accountability and independence of CRAs.The purpose of this paper is to examine these new reforms in a comparative manner against the background of the regulatory regime in force before the credit crisis.