Regulation of Credit Rating Agencies and their Impact (US and Canada)

REGULATION OF CREDIT RATING AGENCIES AND THEIR IMPACT
(US AND CANADA)
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Discussion
According to Carbone (2010), credit rating agencies have been under the consideration of Congress and Securities and Exchange Commission (SEC) for a long time (Carbone ,2010). However, after the 2008 near total collapse of the financial markets there was intensified call for reform after Congress singled out the rating agencies as one of the culprits due to their role in the sub-prime mortgage backed securities crises. July 2010 saw the signing of the Dodd-Frank Act in the US, and its purpose was to impose a new regulatory scheme on rating agencies as well as tightening the existing regulation (McFadden,2010). The Dodd-Frank Wall Street Reform and Consumer Protection Act also set the stage for more to come. However, its primary role was to hold the rating agencies accountable for the nature or quality of their credit rating as well as enhancing the transparency of the same.
The Canadians adopted the Canadian Securities Administrators (CSA) which was published in 2012 as a national instrument 25-101 that designated rating Organizations and came with related consequential amendments (Grewal, 2012). According to Grewal, this set instrument has set out relevant filing, as well disclosure, governance and several requirements which are applicable to a designated rating organizations. In securities legislation, the designation requirement or the trigger is normally set out(Grewal, 2012). The resultant effect is that the CRO (Credit Rating Organization) is required to apply so as to be a Designated Rating Organization, and this is in order that the credit ratings are to be used to satisfy securities law requirements which require a credit rating to be provided by a 'designated rating organization.' Grewal (2012),further argues that the NI 25-101 outlines the governance framework for designated rating Organizations even though there is currently no specified requirement for the credit ratings to be given by DROs.
For the smooth running of these operations, this has to be a consideration to be implemented in the near future. Similarly, there shall be no change to the framework that Canada adopts to exempt the Credit Rating Organizations from the civil liability provisions of the named securities legislation. In terms of consequential amendments, the impact will be in the disclosure required in a short as well as long form prospectus and the annual information forms. In the United States, while most of the Dodd-Frank rating agency reforms have their effect on Nationally Recognized Statistical Rating Organizations, there are two provisions that have already had a significant impact on the public companies which use credit ratings in their periodic filings with the Securities and Exchange Commission. The immediate repeal of the Rule 436(g) under the Securities of 1933 become among the most significant changes brought about by the new legislation. The effect of the repeal of Rule 436(g) was the exposure of Nationally Recognized Statistical Rating Organizations to liability as the experts under sections 11 of the Securities Act registration statement and or prospectus (Grewal ,2012).
There remains a very significant effect of the Repeal of Rule 436(g) on Public Securities Offerings in the United States. To begin with the Securities and Exchange Commission's regulations permit voluntary disclosure of credit ratings, even though the securities laws do not at the moment mandate the disclosure of credit ratings despite the fact that SEC has laid out the proposition requiring such disclosure. For several reasons, including the fact that credit ratings may have an effect on the companies liquidity, covenants in its debt instruments and cost of funds, some companies chose to include the credit ratings in their periodic reports (McFadden, 2010).
There...