A government appointed panel, wants SEBI to be a super regulator. Given the fact that SEBI has now started ‘compounding’ offences at a fee, it is akin to admitting that they are incapable of pursuing a case to its logical end. When you impose a ‘fine’ for doing a sin, the act ceases to be a sin. It legitimizes sin.
As regards rating agencies, only India can let them proliferate by the dozen, encouraging ‘rating shopping’. This alone is enough to kill credit rating.
Conflict of interest in consulting is indeed a genuine problem. The best way to do it is to let the rating agencies promote subsidiaries with not more than 50% ownership. Consulting is a natural progression for a rating analyst.
What I dislike seeing is rating agencies get in to the space of ‘rating’ equities. That is a classic case of conflict. I clearly recall that in my days at CRISIL, we fought tooth and nail to stay away from ‘rating’ equity IPO’s. It is like rating a business plan on a drawing board. Today, thanks to regulators wanting to apportion blame on someone else for their inability to supervise companies, the rating agencies have got in to this business. That is a tragedy.
The committee goes on to say that ownership should be ‘dispersed’. Wonder how they will see subsidiaries of S&P or Moodys or Fitch, which themselves are widely held, with no dominant owner.
It is best that the regulator refrains from inspecting the rating agencies. They neither have the competence nor the resources to do so. The regulators think that rating is a cut and dried scoring system. It is not possible to go in to subjective opinions, which is what rating symbols denote.
Strange that a regulator wants to ‘regulate’ “Opinions”.
The regulators seem to think that a mere inspection will cure everything.
A better thing is to let rating agencies free and let the investor decide.
The thing to focus on is the area of structured finance and derivatives. That is where the problems lie.