Chapter 9: Regulatory response to the problems of structured finance ratings
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In the aftermath of the financial crisis, both the US and the EU have partly overhauled the area of structured finance ratings. The key aspects of reform are symbology, disclosure requirements, conflicts of interest, qualifications and independence of rating analysts and supervisory sanctions. Regulators adopted symbology requirements to ensure that investors understand the difference between structured finance ratings and other rating sectors. They aim to solve the consistency problem that was observed during the subprime mortgage crisis. In the US, CRAs are required to apply any symbol in a manner that is consistent for all types of securities for which the symbol is used. This means that a triple-A rating in a given sector shall mean the same as a triple-A rating in another sector. If a triple-A rating in structured finance does not mean the same as a triple-A rating in the corporate or sovereign segments, CRAs shall adapt the given symbol to reflect the difference. In the EU, structured finance ratings are required to have an additional symbol to distinguish them from other rating classes. In this sense, the EU regulators proceed from the assumption that a triple-A rating in structured finance cannot mean the same as a triple-A rating in other segments. Thus, CRAs shall add an additional symbol so that investors are aware that structured finance ratings are different from other types of ratings. In sum, both reforms strive to bring consistency across rating classes. More disclosure is necessary to allow investors to understand and compare ratings.

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