Law introduces new requirements for rating agencies

AM Best welcomed new legal reforms in the US designed to clean up the financial system.

The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law on July 21.

Included among this legislation’s far-reaching financial market reforms are provisions aimed at enhancing regulation and transparency for credit rating agencies.

These changes represent legal uncertainties that credit ratings agencies must now address, said AM Best.

But AM Best added that many of the provisions directed toward credit rating agency reform will benefit the capital markets as a whole.

The rating agency said it is examining its current practices in light of the new requirements in the Act and will explore ways to ensure that it can fully meet the needs of the marketplace while effectively mitigating its risks under the new law.

For example, the new law exposes credit rating agencies to “expert” liability. As a result AM Best said it would not consent to the use of its ratings in registration statements.