11 Nov 2010 14:07

Russia favors gradual exclusion of ratings from regulations

SEOUL. Nov 11 (Interfax) - Russia backs the idea of removing ratings from regulation, but considers that in some sectors it would be hard to do away with them entirely because of a lack of other evaluative means, a source from Russia's delegation to the Group of 20 summit in Seoul, South Korea has told Interfax.

"Russia generally supports the concept of gradually excluding ratings from regulation. At same time, it will be quite complicated to do away with the use of credit ratings in many areas of financial and economic regulation, since in the near-term perspective their application cannot be replaced with other mechanisms for evaluation," this source said.

It would be hard not to use ratings in such areas as the investment of pension funds, the making of financial decisions by retail investors (with small monies to invest), or the management of national welfare fund monies.

A large-scale campaign to limit the use of ratings could create a range of problems, including the evocation of mistrust among investors in ratings and the work of rating agencies, including among private investors, for whom making investment decisions would become more difficult, the source said.

It could also lead to difficulties when central banks are choosing public credit-worthiness criteria for counteragents or securities in refinancing operations on the home market, and it could potentially prompt a reduction in the volume and frequency at which borrowers provide information.

"Russia's position is that reasonable balance in the use of external ratings and the conduct, as possible, of economic analysis for the estimation of financial risks should be ensured," the delegation member said. Russia also considers it necessary to set up a system of governmental control over the activities of ratings agencies, and also increase their and their managements' responsibility for the quality of ratings reviews by means of the appropriate standards and regulations.