In the aftermath of the financial crisis triggered in 2007, lawmakers and regulators have acknowledged that the credit rating industry needs structural change. The CRA Regulation in the EU and the Dodd-Frank Act of 2010 in the US represent the most significant regulatory overhaul since the creation of the industry. Broadly speaking, the implementation of the CRA Regulation and the Dodd-Frank Act will mark a turning point relating the position of CRAs in modern financial markets.1 In the US they will lose their privileged position and no longer benefit from regulatory reliance. Step two of the EU CRA Regulation will probably follow the US trend as suggested by the EU public consultation on CRAs and the November 2011 proposal for an amendment of the CRA Regulation. In general, over the last few decades there have been three significant periods with respect to the regulatory structure of the rating industry. First, at the beginning of the twentieth century through to the 1970s, CRAs were neither regulated nor significantly used in financial market regulations. Second, especially since the 1970s, CRAs were still not regulated, but increasingly used for regulatory purposes. Third, since the Dodd-Frank Act, a transition period has been initiated so that CRAs will no longer be used in financial market regulations, but will become as highly regulated as other gate-keepers such as auditors and securities analysts. The impact of the CRA reforms in the US and the EU remains – to some extent – uncertain, but one definitive point is that they will change the position of CRAs in modern financial markets.
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