Both the Government and the Australian Securities and Investments Commission (ASIC) will need to fully understand the total financial advice value chain if they are to effectively investigate the role of research houses.
That is the analysis of the principal of research and publishing house brillient!, Gra_ham Rich, who has welcomed the Govern_ment’s announcement that the Treasury Department and ASIC will review the reg_ulation of credit rating agencies and research houses in Australia, but expressed doubts over the capacity of such a review to find the right answers.
The Minister for Superannuation and Corporate Law, Senator Nick Sherry, said he initiated the review because of concerns voiced to him about the role of ratings agen_cies with respect to recent financial market problems and the sub-prime meltdown.
However, Rich said that he was “seriously amazed” that it had taken so long for the Government to address the issue.
“I am amazed it has taken such an inor_dinate amount of time for the regulators to understand the role research houses play as gatekeepers in the advice value chain.
“They (ASIC) have been all over the role of the adviser and the dealer group function and they have imposed enforceable under_takings etcetera, but I think they have, in that sense, failed to recognise there is a chain, a set of interlinking participants, and the research houses play a critical role in that process,” Rich said.
For their part, the major research houses are taking a cautious approach.
Morningstar head of consulting Anthony Serhan said the company was more than happy to participate in the process in cir_cumstances where it had been built around issues of transparency and process.
“But we will wait and see more detail,” he said.
Standard & Poor’s fund ratings director Mark Hoven said his company looked for_ward to discussing its ratings, policies and track record.
“We announced recently a far-reaching set of actions to further strengthen our cred_it ratings process, enhance our analytics and provide more transparency to the market, and we are consulting with market participants on these enhancements,” he said.
The chief executive of the Investment and Financial Services Association, Richard Gilbert, said the review was welcome but any regulation flowing from the exercise should be “light touch” in circumstances where a heavy handed approach could create bar_riers to entry.
Rich made clear that hav_ing worked in the ratings arena, he had no desire to snipe at the research hous_es, which he believed were doing a good job, but said there was a genuine need for the regulator to understand what they (the research houses) actually do.
