Domestic rating agencies to play bigger role as yuan goes global: expert
Domestic credit rating agency Dagong Global Credit Rating Co on Sunday denied a media report that its European branch is under a two-year probe, and it noted that the branch's operations are in line with the related rules and regulations.
The European Securities and Markets Authority (ESMA), a Paris-based independent authority that supervises and sanctions rating agencies inside the EU, is reportedly conducting a confidential investigation of Dagong Europe Credit Rating Srl (Dagong Europe), the European branch of the Chinese credit rating agency, Reuters reported Wednesday.
The report noted that the regulator has concerns that the Chinese credit rating agency is not operating fully in line with EU rules, which may jeopardize clients' interests.
Reuters also said that the ESMA asked Dagong Europe to make sure "the persons validating the rating methodology do not vote in rating committees," and also ensure that the company's two independent board members have to provide opinions and proposals, "which never did happen," Dagong Global Chairman Guan Jianzhong told the Global Times Sunday.
Guan noted that Dagong Europe is operating under a legitimate structure, with a compliance and legal officer ensuring interpretation and monitoring of the laws, regulations and other technical and legal documentation produced by the relevant authorities - for example, the ESMA.
"It's impossible that the branch broke those rules, as the officer also prevents conflicts of interest related to the company's management," said Guan.
Dagong Europe was established in March 2012. It was registered and received authorization from the ESMA in June 2013, according to the agency's website. Based on 2014 turnover from credit rating activities in the EU, Dagong Europe accounted for about 0.02 percent of the market share while the big three - Standard & Poor's, Moody's and Fitch - remained the industry leaders. They had 40.4 percent, 34.7 percent and 16.8 percent of the market, respectively, according to a report published by the ESMA on December 18.
The ESMA could not be reached by the Global Times by press time on Sunday due to the holiday in the EU.
Unlike major credit rating agencies, which adopt assessment methods that appear to be biased due to major problems such as the clear position of protection of the interests of the largest debtor and inadequate credit risk analysis, "Dagong Global is trying to build up a new theory, which still needs time to be fully recognized in the European market," Guan noted.
The internationalization of the yuan will bring more opportunities for financial institutions to issue yuan-denominated debts, for which Chinese credit rating agencies are expected to gain a larger market share, Tu Yonghong, a professor who specializes in international currencies at Renmin University, told the Global Times Sunday.
"The current international rating system shaped with historical influences has become a tool of the world's biggest debtor interest bloc," she said, noting that Chinese agencies are expected to become more innovative. For example, Dagong was the first to downgrade the US sovereign debt rating.
Considered growing cooperation between the EU and China under the China-proposed Belt and Road initiative, Chinese credit rating agencies must "build a bridge" while creating a new international credit rating system, which could also help companies and institutions avoid potential risks, Guan noted.
