Monday, 6 March 2017

The Politicisation of the Credit Rating Arena: The Universal Credit Rating Group

This small post today focuses upon the Universal Credit Rating Group (UCRG), which is an alliance between Dagong Ratings, RusRatings, and Egan Jones Ratings. The alliance aims to counter the effect of the ‘Big Three’ rating agencies – Standard and Poor’s, Moody’s, and Fitch – and ultimately provide a more transparent and, as they claim, fair rating system across the globe. However, as we will see, there is the opportunity for powerful political actors to influence proceedings with the UCRG and that influence, if only perceived, is potentially a fundamental hurdle to the group realising its aims.

This piece relies heavily upon a recently published article by this author – which can be found here in its final form, and here in a pre-published and altered form. The UCRG, throughout their campaign, have made consistent references to the importance of developing ‘shared goals’ for the benefit of ‘mankind’, which they suggest will be achieved by credit rating agencies around the world, with the exception of the Big Three, coalescing into a formidable force that will initiate a new set of standards that will then be adopted industry-wide. However, the issue with this plan is that, collectively, the Big Three control nearly 95% of the market; therefore, the UCRG suggests that the alliance can act as a check on the ratings of the Big Three in order to provide a mirror with which one can truly rate the ratings and procedures of the established agencies. This issue is discussed in more detail in the article, but as discussed in a previous post, there are perhaps better ways to fulfil this ‘checks and balances’ role, particularly with the non-profit agencies that exist. This usage of non-profit agencies would not only serve to increase the perceived impartiality, which is very important in this sector, but would not contain the potential introduction of major political influences in the field, which is a major issue with regards to the UCRG.

This is because Dagong Ratings, and RusRatings, are the national agencies of their respective countries; China and Russia. Although the potential for political influence from these two sets of Government should be obvious, there is an added incentive to become involved when we realise that Russian President Vladimir Putin, especially, has had a long-running issue with the Big Three, which has even led to him creating his own rating agency directly to take the fight to the Big Three agencies. President Putin is adamant that the Big Three’s operations are political in nature, which although is hard to prove cannot be ruled out. However, the same condemnation works the other way, and in this case two wrongs do certainly not result in a right.

Ultimately, the UCRG is doomed by its potential allegiance to major political figures in President Putin and the Chinese Politburo. It is a shame that Egan-Jones Ratings will not be able to have the effect that it perhaps should on the global rating arena, as its past is a story of attempting to provide a genuine alternative to the dominance of the Big Three, yet it is constantly thwarted – by the Big Three, the U.S. Government, and now, potentially, its allegiance to Russian and Chinese politics. Unfortunately, the only way to provide an alternative to the dominance of the Big Three is to provide a consistent and impartial, especially as it is perceived, rating agency which has clear and realisable values. The non-profit sector is the best bet for this as it stands, because the entrance of political figures into an arena that is already defined by its underhandedness and incredible subjectivity is a worrying development.

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