The financial services industry has backed the Federal Government’s decision to tighten the regulation of credit ratings agencies and research houses.

Superannuation Minister Nick Sherry says the global financial crisis has put the role of ratings agencies in “stark relief” and it is time for reform.

Speaking last week at the National Press Club in Canberra, he said the granting of a AAA rating “was actually meant to mean something to investors”.

“However, by the time the toxic instruments underwritten by subprime loans began collapsing under the weight of their bad debts, the value of such ratings were so low that we should perhaps pen a new term and describe them as ‘subprime ratings’,” he said.

The Financial Planning Association, Investment and Financial Services Association (IFSA) and the Association of Superannuation Funds of Australia have thrown their support behind the Government’s move.

IFSA CEO Richard Gilbert told insuranceNEWS.com.au the decision to license ratings agencies is a pragmatic and sensible one.

“There have been a lot of contributing factors to the financial crisis – 20 years of a bullish market, overdue regulation, poor investment of banks, over-reliance on ratings agency reports and some failed reports,” he said.

“To say there is just one factor is overstretching it. But this move will give ratings an obligation, which is a good result for the financial market.”

Ratings agencies will immediately lose the exemption they’ve held from having an Australian financial services licence and they will be required to submit annual compliance reports to the Australian Securities and Investments Commission (ASIC).

“The free-wheeling period of unaccountable ratings agencies in this country is now over,” Mr Sherry said.