Global regulators are increasing scrutiny of credit ratings used in the private credit market, amid concerns over transparency, conflicts of interest and potential “ratings shopping” within the rapidly expanding asset class, according to a report by Bloomberg.
The Financial Stability Board (FSB) has raised concerns that private credit borrowers and sponsors may be able to seek ratings from multiple providers and select the most favourable outcome. Regulators are also examining the fact that private credit ratings are not subject to the same post-financial crisis safeguards that apply to securitised products, such as requirements for multiple independent ratings.
The review forms part of the FSB’s broader work on risks within non-bank financial institutions, including asset managers, insurers and hedge funds. Officials have indicated that the current focus is on identifying vulnerabilities rather than proposing immediate policy changes.
Separately, the Bank of England is assessing the role of ratings firms as part of a system-wide stress-testing exercise covering private markets. The scenario analysis is designed to assess how private assets would respond to a sharp economic shock, with results not expected until 2027.
