The subject of auditors, their regulators, and the conflict of interest that occurs when those auditors provide consultancy services has been well covered here in Financial Regulation Matters . We have examined the issues within the Financial Reporting Council (the UK’s main regulator of audit services) that have seen the regulator’s internal structures change recently. We have also examined a number of issues affecting the audit sector, including the presence and effect of an oligopolistic model , the so-called ‘ expectation gap ’ that exists between how the auditors perceive their role to how the market and society perceives their role, and also how some auditors have started to take voluntary steps to divest or spin-off their consultancy arms . With regards to the last point, we spoke about how either allowing auditors to voluntarily divest, or forcing them to divest with no long-term strategy was a mistake, so the recent comments of the new head of the FRC are worth examining. ...

With the Credit Rating Agencies being the exclusive research concern of this author, it is unsurprising that they, as an industry, have featured heavily here in Financial Regulation Matters . As such, we tend to keep abreast of developments within this industry as well as other key financial areas, and in this post we will continue this approach by examining the latest ‘move’ in this particular marketplace. We recently looked at developments within Scope Ratings , the European entity seeking to provide a pan-European alternative, whilst we also looked at recent mergers that potentially concern the so-called ‘Big Three’ (in relation to sale of Acuris ). To complement these analyses we looked closer at the concept of an ‘ oligopoly ’ and its application onto the credit rating industry, which allows us to understand the dynamics between the Big Three and their relationship with the rest of the marketplace. We will soon be analysing a new entrant into the marketplace in the coming weeks...

In this short post, we will review the news from a couple of weeks ago that Fitch Ratings, the third member of the Credit Rating Agency oligopoly, has been fined by the European Securities and Markets Authority (ESMA) for breaching its conflict of interest-related rules, specifically with regards to its ownership. Fitch Ratings is the third member of the rating oligopoly and, like S&P is not a public company. Therefore, its ownership structure is a little more opaque and difficult to accurately determine. We know that the firm is owned by the influential Hearst Group, but only after the Group increased its stake in the agency at the expense of previous majority shareholder, French conglomerate Fimalac , in 2014. It is in relation to the ownership of Fimalac that this current regulatory action relates. Yet, whilst most CRA-related transgressive behaviour revolves around weighted bias – weighted in relation to the power dynamics within the rating industry and its connection t...

In today’s post, the focus will be on an industry that has been covered a lot here in Financial Regulation Matters . Recently, two auditors, in particular, having been making the headlines for all the wrong reasons, and as a result there have been calls for the industry to be ‘broken up’. However, how realistic is that call? There is a potential issue within society whereby calls are made that have no substance nor any understanding of the dynamics at play, so in this post we will look at the industry in closer detail to see just how realistic that large-scale call actually is. In the wake of the Enron Scandal and the collapse of Arthur Andersen, in addition to a massive reputational breakdown of the wider audit industry, the term ‘ too few to fail ’ was put forward as a suggestion for why the industry could simply carry on with their business once the news cycle has turned elsewhere. In the last year, these suggestions have been repeated , with there being an increased focus on...