“Standard & Poor’s Japan unit was ordered by the nation’s financial watchdog to improve its system for verifying and updating credit ratings in the regulator’s first action against a ratings company.
“Significant problems were identified with the company’s business operations from the perspective of the public interest and investor protection,” the Financial Services Agency said in a statement in Tokyo today. The regulator issued the order on Dec. 11 and gave S&P until Jan. 18 to submit its first report.
The rating company’s woes in Japan came to light less than a month after it was found liable by an Australian judge for issuing misleading ratings on securities bought by municipalities ahead of the global financial crisis. S&P failed to properly confirm information that would affect the ratings of synthetic collateralized debt obligations, the FSA said.
“Investors often rely on ratings by agencies like S&P for complicated securities such as CDOs,” Tsuyoshi Ueno, a Tokyo- based senior economist at NLI Research Institute, said by telephone. “Now what can they trust?”
Credit rating companies face increased regulation after a U.S. Senate panel found they provided inflated grades for risky mortgage bonds, helping cause the credit crisis in 2007 and 2008 that tipped the global economy into a recession.
In Europe, they may face curbs on when they can assess government debt and restrictions on their ownership as the European Union seeks to limit the industry’s influence and tackle conflicts of interest.”
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