It stressed the importance for asset managers to have the appropriate expertise and processes to assess and manage the credit risk with their investment decisions.

In its consultation report Good Practices on Reducing Reliance on CRAs in asset management, Iosco said it wants to gather the views and practices of investment managers, institutional investors and other interested parties.

The role of CRAs has come under regulatory scrutiny, mainly as a result of the over-reliance of their ratings in the run-up to the financial crisis.

The report recognises that external ratings are useful alongside other sources and provide an independent opinion for internal credit analysis.

To avoid over-reliance on external ratings, the report lists eight possible good practices that managers could consider. These include investment managers making their own decisions over the credit quality of securities or funds but the report also lists a number of practices which are “encouraged” by regulators.

The practices that could have regulatory input include the reviewing of disclosures, the use of internal sources of credit information in addition to external credit ratings, the disclosure of the use of external credit ratings and how they are used.

To address concern over the role of CRAs, the Financial Stability Board (FSB) published a report on Principles for Reducing Reliance on CRA Ratings in October 2010. Iosco is translating the Principles into more specific policy action.

Iosco also has launched a separate project to identify the good practices of intermediaries in using alternatives to credit ratings in order to assess creditworthiness.