Self-regulation has so far played a crucial role in establishing standards of conduct with respect to CRAs. Self-regulation refers to voluntary codes aiming at influencing industry practice. The most important body that sets up self-regulatory frameworks for CRAs is the International Organization of Securities Commissions (IOSCO). Its most relevant reference document is the IOSCO Code of Conduct. Adhesion to the IOSCO Code of Conduct is not compulsory so that its rules are based on voluntary compliance. Nevertheless, the IOSCO Code of Conduct has been widely recognized as the global benchmark for business standards to which CRAs are expected to adhere. CRAs’ compliance with the self-regulatory framework is interpreted among the investing community as a sign of good governance. One of its core principles is the “comply or explain” principle, ie CRAs can deviate from the IOSCO Code of Conduct if their own codes or practices are adequate. The IOSCO Code of Conduct provides no enforcement mechanism and merely uses the “comply or explain” approach. Moreover, not all the IOSCO provisions are applicable to CRAs that provide credit ratings on a subscriber basis, ie the investor- paid CRAs. The IOSCO principles address (i) the quality and integrity of the rating process, (ii) CRAs’ independence and the avoidance of conflicts of interest, and (iii) CRAs’ responsibilities to investors and issuers. Further- more, the three leading CRAs’ own Codes of Conduct contain only a few significant but well-documented variations from the IOSCO Code of Conduct.
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