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FSS inspectors to investigate rating firm’s assessment of enterprises
Korea Investors Service, a local unit of U.S.-based Moody’s Investors Service, will be investigated by Korean regulators over its fairness in assessing enterprises, industry sources said.
The Financial Supervisory Service, which has been making a preliminary inquiry into Korea Investors Service, plans to dispatch inspectors to the Seoul office of the credit rating firm in early September.
The timing of the coming regulatory investigation has drawn attention as Moody’s, which recently downgraded Japan’s sovereign rating, is set to unveil its rating on Korea, industry sources said.
It seems that the scheduled probe came somewhat in line with the consensus among Group of 20 members to instruct rating firms take heavier responsibility for their assessments, they said.
Aside from U.S. regulators’ ongoing scrutiny of Standard & Poor’s which has lowered the U.S. sovereign rating, G20 has been moving to enhance supervision of the overall global ratings industry.
Though FSS officials downplayed the connection between the coming inspection of KIS and G20 countries’ movement, they said the inspection is partly focused on the issue whether the company’s assessments were based on “fairness under their own rating standards.”
According to the FSS, a group of inspectors will be dispatched to KIS in Seoul as early as this week and it will take about a week to complete the on-the-spot inspection.
Moody’s, which conducted its on-the-spot assessment of Korea in May, is expected to announce its rating in the coming weeks. It had revised Korea’s rating upward to “A1” from “A2” in April 2010.
Two other local credit rating firms also have been under regulatory inquiry since late July.
Regulators carried out an on-the-spot probe into Korea Ratings, whose majority shareholder is Fitch Ratings, this month and has been inspecting NICE Investors Service.
An FSS official said their “credibility” comes under spotlight as several large enterprises, including LIG Engineering & Construction and Korea Line Corp., had faced a liquidity crisis following several rating firms’ positive assessments.
“Past probes into the industry were focused on irregular practices of the staff at ratings firms,” he said. “Now we plan to widen the scope of inquiry.”
In June, the prosecution raided the office of Seoul Credit Rating & Information, suspected of engaging in misdeeds in connection with the scandal-ridden savings banking industry.
Meanwhile, there is skepticism in the market over the efficacy of the regulatory inquiries.
A research analyst said the issue is that most enterprises and investors pay keen attention to the rating firms’ grading, predicting the real regulation would be reducing dependence on their assessments.
“It is also uncertain whether G20 will be successful in generating a powerful agreement to take stern action against global rating firms,” he said.
By Kim Yon-se (kys@heraldcorp.com)
Korea Investors Service, a local unit of U.S.-based Moody’s Investors Service, will be investigated by Korean regulators over its fairness in assessing enterprises, industry sources said.
The Financial Supervisory Service, which has been making a preliminary inquiry into Korea Investors Service, plans to dispatch inspectors to the Seoul office of the credit rating firm in early September.
The timing of the coming regulatory investigation has drawn attention as Moody’s, which recently downgraded Japan’s sovereign rating, is set to unveil its rating on Korea, industry sources said.
It seems that the scheduled probe came somewhat in line with the consensus among Group of 20 members to instruct rating firms take heavier responsibility for their assessments, they said.
Aside from U.S. regulators’ ongoing scrutiny of Standard & Poor’s which has lowered the U.S. sovereign rating, G20 has been moving to enhance supervision of the overall global ratings industry.
Though FSS officials downplayed the connection between the coming inspection of KIS and G20 countries’ movement, they said the inspection is partly focused on the issue whether the company’s assessments were based on “fairness under their own rating standards.”
According to the FSS, a group of inspectors will be dispatched to KIS in Seoul as early as this week and it will take about a week to complete the on-the-spot inspection.
Moody’s, which conducted its on-the-spot assessment of Korea in May, is expected to announce its rating in the coming weeks. It had revised Korea’s rating upward to “A1” from “A2” in April 2010.
Two other local credit rating firms also have been under regulatory inquiry since late July.
Regulators carried out an on-the-spot probe into Korea Ratings, whose majority shareholder is Fitch Ratings, this month and has been inspecting NICE Investors Service.
An FSS official said their “credibility” comes under spotlight as several large enterprises, including LIG Engineering & Construction and Korea Line Corp., had faced a liquidity crisis following several rating firms’ positive assessments.
“Past probes into the industry were focused on irregular practices of the staff at ratings firms,” he said. “Now we plan to widen the scope of inquiry.”
In June, the prosecution raided the office of Seoul Credit Rating & Information, suspected of engaging in misdeeds in connection with the scandal-ridden savings banking industry.
Meanwhile, there is skepticism in the market over the efficacy of the regulatory inquiries.
A research analyst said the issue is that most enterprises and investors pay keen attention to the rating firms’ grading, predicting the real regulation would be reducing dependence on their assessments.
“It is also uncertain whether G20 will be successful in generating a powerful agreement to take stern action against global rating firms,” he said.
By Kim Yon-se (kys@heraldcorp.com)
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