Hon Chairperson, one of the key issues of the Credit Rating Services Bill is liability, and I would like to speak about the issue of liability. A credit rating agency's relationship with an issuer is governed by the terms of a contract, entered into between sophisticated parties and which should govern the liability arrangement between those two parties, without legislative interference.
It should be remembered that this Bill gives the Financial Services Board significant regulatory powers to enforce the resulting regulatory framework, including the power to withdraw the registration of a credit rating agency.
A simplified liability clause was adopted stating in terms of section 19(1) of the draft Bill that a credit rating agency, CRA, may be held delictually liable to an investor or a member of the public, in respect of a credit rating issued or credit rating service performed, for any loss, damage or costs sustained as a result of such credit rating or credit rating service.
Credit rating agencies have never before been the direct subject of legislation. The position is, however, about to change with this Credit Rating Services Bill 8 of 2012.
While many of our proposals to amend the liability clauses in section 19, we are pleased to announce, were adopted, we remain concerned that the legislation as it stands provides a disincentive for credit rating agencies to provide credit ratings. This could lead to a reduction in the amount of information available in the market to investors, rather than increasing the accuracy of credit ratings.
The liability provisions in the Bill should have been tailored to limit the liability of credit ratings to cases where there was either intentional error or gross negligence in the formulation of ratings, and not simply when credit rating agencies issue a credit rating. Thank you. [Applause.]