New fin coy rules require education
Ratings agency Standard & Poor's sees a need for investor education following the announcement of new rules for the non-bank financial sector.
Thursday, June 21st 2007, 9:57PM
As part of the rules, companies , such as finance companies, building societies and credit unions, that take deposits from the public will need to obtain and publicly disclose a credit rating.Such companies, known as non-bank deposit takers (NBDT), are a growing part of the financial sector.
With that growth has come concerns that inexperienced investors may not be adequately aware of the risk profile of their investment.
Today S&P said credible international credit ratings on NBDTs would help financial advisers, planners, and investors to better understand the risks in the non-bank financial institutions sector.
But while its ratings were well understood in the institutional sector they were less so in the retail sector, S&P corporate and government ratings director Gavin Gunning said.
"Our most important short-term objective is market education."
S&P ratings had an associated probability of default that would be powerful information for helping investors differentiate between institutions of varying risk profiles.
Market education initiatives would focus on explaining what ratings meant in the context of their associated probability of default, Gunning said.
Credible credit ratings were one of the factors that could contribute to efficient self-regulation of non-bank financial institutions but were not a substitute for adequate issuer disclosure or competent investor advice.
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