The China Securities Regulatory Commission said on Aug 17 that it has suspended Dagong Global Credit Rating, one of three main ratings agencies in the nation, from bond market business for one year for charging extravagant fees for consultancy services to clients.
The regulator announced the punishment at a weekly news conference, on the same day the National Association of Financial Market Institutional Investors, or NAFMII, prohibited the firm from rating some types of credit products for a similar period, according to an announcement on its website.
The decision was made after the association conducted a national self-regulation inspection for short-and medium-term notes, mainly in the interbank bond market and foreign exchange market.
The punishment is the most severe one for a Chinese ratings agency, said analysts, as the government reiterated its efforts to fight systemic financial risks, especially when the debt problem continues to be a potential factor for instability.
It could also be a signal that China’s deleveraging process will continue, through monitoring a broader range of financial services, and pushing forward the process in an orderly manner at a reasonable pace, aiming to control expansion of debt risks and maintain financial sector stability, said Zhang Xu, an analyst with Everbright Securities.
Dagong charged bond issuers exorbitant fees and its consulting business “seriously violated” ratings firms’ independence, according to the NAFMII statement, adding that the company reported fake information during the investigation.
Chang Depeng, spokesman of the CSRC, said at the news conference on Aug 17 that securities ratings agencies “should enhance internal control mechanisms, build up firewalls and prevent conflict of interest.”
His remarks were delivered after the CSRC found Dagong’s management to be chaotic during its on-site inspection.
The commission will further coordinate with the central bank to improve regulation, and strengthen the connection between interbank and exchange-traded bond markets, according to the CSRC spokesman.
Another ratings firm, China Lianhe Credit Rating Co, was warned by the association last year due to a lack of quality control in the ratings process, according to NAFMII’s website.