Ministerial Legislative Committee Approved a Law Bill Regulating the Activity of Credit Rating Companies in Israel
The Ministerial Legislative Committee approved the law bill formulated by the Israel Securities Authority, in cooperation with the Ministry of Finance and the Ministry of Justice, on regulating the activity of credit rating companies in Israel.Most of the rating companies primarily engage in providing overviews assessing the ability of a debtor to meet its commitments.
Rating companies constitute a dominant factor affecting the activity of capital markets around the world.The sub-prime crisis and the subsequent credit crisis highlighted the failures in the activity of the rating companies, which were mainly related to limitations in the rating methodology, conflicts of interests and the lack of transparency in the rating process.
The contribution of these failures to the rating companies’ part in the crisis was intensified still further in view of the investors’ excessive reliance on the results of the rating process. The central role played by the rating companies in these crises heightened the need to regulate this important field.The law bill attempts to define what rating is and what a rating company is, and sets minimal criteria for the activity of rating companies and for the rating process.
The proposed law includes various provisions related to guaranteeing the independence of the rating companies and coping with conflicts of interests in their activity. In addition, transparency for the public will be increased, and powers of supervision and enforcement of the activity of the rating companies will be established, including civil and administrative sanctions for violations of the provisions of the law. Additionally, a principle was determined whereby the Israel Securities Authority will not intervene with the rating content and methodologies, but the rating company will be required to disclose the methodologies and the information on which the rating is based, in order to make it possible to assess their reliability and quality.According to Israeli Minister of Finance ,the law will bring the regulation of rating companies in Israel to the same level as in western countries.
Ratification of the law could also expand the activity of international rating companies in Israel.”Israel Securities Authority Chairman Professor Shmuel Hauser said that “the law will help protect the investor public that relies on the ratings and will guarantee that the rating process and the rating itself are reliable, in a high quality and independent.