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Chinese authorities have told S&P’s China subsidiary to “rectify” its operations, the latest step in an industry-wide crackdown triggered by concern over inconsistencies in rating agencies’ approach to gauging risk.
The Beijing Bureau of the China Securities Regulatory Commission on Tuesday sent a letter to the agency, noting its “failure to adhere to the principle of consistency” in its rating business and “failing to disclose information”.
Regulators have issued warnings and imposed fines on other rating agencies in recent months, repeatedly citing issues with consistency and low fees amid a proliferation of Triple A ratings and concerns that companies are “shopping” for better assessments.
Almost all of the ratings directly awarded to new corporate bonds in China are now triple A, adding to questions about their reliability, though many individual bonds are unrated. In 2016, less than half of rated bonds received a triple A rating.
In the letter from the Beijing securities bureau, published on its website, they did not provide specific details but said S&P “must immediately initiate comprehensive rectification”.
In a statement to the Financial Times, S&P said: “We are committed to taking the necessary steps to address the points raised and ensuring compliance with the regulatory requirements.”
Ratings in China for both bonds and issuers, most of which are also double A or triple A, are provided by domestic agencies, some of which are linked to the state. The People’s Bank of China lists dozens of companies that are registered to provide ratings in the country.
On Tuesday, the PBoC in Shanghai published details of a Rmb3.3mn ($463,000) fine on China Bond Rating for failing to register staff, violating independence requirements and failing to disclose information. The measures, imposed in August, also included fines of Rmb90,000 each for four employees.
The central bank’s Beijing branch, in a notice on its official website, warned and fined Golden Credit Rating Rmb629,000 and one employee Rmb40,000 on Aug 12. The regulator said the company solicited business by promising a low fee and violated the principle of “consistency”.
The National Association of Financial Market Institutional Investors said in August that China Lianhe Credit Rating, another domestic rating agency, had provided inconsistent ratings, resulting in a “severe warning”. It also criticised CSCI Pengyuan for giving potential clients advice on how to improve ratings and allowing the ratings and marketing teams to approach companies together.
S&P was separately fined Rmb2.1mn early last year for “failing to conduct credit ratings in accordance with legal rating procedures and business rules”, based on a 2021 inspection, the rating agency said.
Credit ratings, which help investors gauge the risk of an investment and are a crucial part of the plumbing of bond markets globally, were introduced to China in the 2000s as the country sought to internationalise its financial system.
Both S&P and Fitch have wholly owned subsidiaries on the mainland, while Moody’s has a minority stake in a domestic agency.
China Bond Rating, Golden Credit Rating, China Lianhe Credit Rating and CSCI Pengyuan did not respond to a request for comment.
