Ratings agencies Standard & Poor’s (S&P) and Moody’s have announced that they will apply for wholesale Australian financial service licences in preparation for the introduction of the Australian Securities and Investments Commission’s (ASIC) new regulatory framework for ratings from January 1.

S&P says the new regime governing ratings used by wholesale clients will play an important part in strengthening ratings transparency and quality, as well as build market confidence in credit ratings.

S&P has withdrawn its application for a retail licence. From January 1 its credit ratings will no longer be available to Australian retail investors.

ASIC’s new regulations require credit ratings agencies that wish to assign credit ratings for investment products offered to retail investors to be members of an approved external dispute resolution (EDR) scheme such as the Financial Ombudsman Service.

S&P MD for Australia and NZ John Bailey says the company supports the new regulations “that strengthen transparency and oversight and improve market confidence”.

But he still has concerns over the EDR scheme requirement.

“We are concerned that membership of a local EDR scheme would interfere with the analytical independence of our rating opinions and undermine the global consistency and comparability of ratings,” he said.

Mr Bailey says the EDR scheme could change the substance of a rating and lead to dual credit ratings – an Australian “EDR” domestic credit rating and a “rest of the world” credit rating.

“Because the local ombudsman would effectively be second-guessing S&P analysts, we believe this would ultimately create investor confusion and harm financial markets. (The scheme) could also require credit ratings agencies to disclose information that is commercially confidential and proprietary to third parties.”

Fitch Ratings said earlier this month that it will apply for a retail licence.