Chinese Look To Develop Investor-Paid Rating Agency

March 23, 2011 by · Leave a Comment
Filed under: The Rating Agencies 

The National Association of Financial Market Institutional Investors (NAFMII) is a Chinese self-regulatory organization set up by China’s central bank in 2007. It is now spending 50 million yuan ($7.5 million) to develop a new rating agency to help protect investors as private companies sell more debt.

Central to the establishment of the new rating agency is an investor-paid business model. China’s bond market regulator said that investors must fund the agency instead of issuers to avoid conflicts of interest.

Bloomberg News quotes Shi Wenchao, secretary-general of the NAFMII, as saying, “The credibility of China’s credit-ratings agencies and their authority is not high…The inadequate set-up of the industry in China has imposed no effective external constraints, and has caused some misbehavior in the market.”

China currently has five credit-rating firms all using an issuer-paid business model.

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