CS FfD Group Submission on Credit Rating Agencies to UN Independent Expert on Foreign Debt and Human Rights (pdf)
The operations of CRAs have long been rife with multiplicities of problems and failures, including monopoly power, conflicts of interest and moral hazard, procyclicality and the creation of systemic financial risks, failed performance and a deeply flawed business model. In the aftermath of the Global Financial Crisis 2008, there were a multiplicity of criticisms weighed against private CRAs (the big 3 of Fitch, Moodys, Standard & Poor). These criticisms included financial market volatility exacerbated through issuance of faulty public statements, ratings warnings, and downgrades; and constraints to policy space, access, inclusion and terms of engagement in the global economy (bigger issue of structural dependency on external finance), terms of borrowing cost, terms of domestic bond market issuance, etc.). Various systemic financial regulation was called for in the aftermath of the 2007-8 Global Financial Crisis as well as the 1997 East Asia.
Now in the context of the COVID-19 pandemic and ensuing debt crises, the role of CRAs in the context of the current sovereign debt crisis across developing countries both low- and middle- income is under scrutiny and has raised both criticism and calls for their further regulation.
This submission includes reflections and recommendations on Credit Rating Agencies and impacts on debt crisis and human rights.