UK FCA findings on effectiveness and governance of rating committees at CRAs

The UK Financial Conduct Authority (FCA) has published findings from a multi-firm review assessing the effectiveness and governance of rating committees at UK-registered credit rating agencies (CRAs). The review focused on four areas: purpose, people, processes, and internal controls, highlighting both good practices and areas for improvement. Most firms had systems supporting compliance with internal policies and the EU Credit Rating Agencies Regulation (as amended by the CRA Regulations (EU Exit) 2019), alongside controls to prevent unauthorised access to information. Most firms also had robust governance frameworks in place with three lines of defence. However, some lacked clear documentation of rating committees, making it difficult to determine variations by asset class or whether any deviations or exceptions were permitted. Good practices on people included collective decision-making, in-house training for committee Chairs and systems for member selection, while improvements were needed in meeting minimum quorum requirements and monitoring conduct and culture risks.

Observations of live and simulated committees showed that outcomes can vary depending on how committees operate; firms should adopt measures to enhance visibility, consistency and maintain standards. On internal controls, CRAs must maintain effective structures that prevent conflicts of interest and safeguard independence of credit ratings. The FCA expects CRA internal control functions, such as risk, compliance, and internal audit, to review these findings and consider enhancements to oversight of the rating committee process. Firms are encouraged to reflect on how these insights apply to their operations and adopt relevant good practices. The FCA plans further engagement to assess the effectiveness of internal controls and surveillance processes, including the role of rating committees and oversight mechanisms.

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