Sound corporate governance, debt ratings crucial

CAPE TOWN – Moody’s Investor Services, Fitch Ratings and Standard & Poor’s: the three global companies that have enjoyed an oligopoly on corporate and government debt market credit ratings for nearly a century, have faced a great deal of criticism in recent years.

In the global financial crisis of 2007/8 they were hauled over the coals for assigning too high credit ratings in the US on what was essentially junk mortgage debt, resulting not in any prosecutions mind, but in additional legislation that is supposed to make the operations of these agencies more transparent.

Much criticism is about the way they make money and the seeming conflict of interest of being paid by issuers to assign credit ratings on the debt of those issuers.

South Africa introduced a Credit Rating Services Act in 2013, much in line with many other countries; and the Financial Sector Conduct Authority has a small department that monitors the compliance to the act by the three agencies.

An internet probe reveals one of the three agencies paid a R300000 fine to the government in 2019/20, but the name of the company or nature of transgression was not disclosed.