Sabrina N. Gordon, Business Reporter

Wayne Dass, chief executive officer of CariCris.

CariCris, the Port of Spain-based Caribbean credit-rating agency, has received formal recognition from Jamaica's Financial Services Commission (FSC), but the FSC says that the seal does not imply its guarantee of the quality rating CariCris applies to instruments or institutions.

CariCris began operating in 2004 as a regional response to global rating agencies such as Standard and Poor's and Moody's.

It is the first to be registered with with the FSC, the watchdog of Jamaica's financial services market, which has become more aggressive recently in the face of the rise of a raft of so-called alternative investment schemes.

Since it gave its first rating in 2005, CariCris has completed 26, six of them for Jamaican entities.

Rating agencies are not normally policed by regulatory agencies, but according to CariCris' CEO Wayne Dass, recognition by the FSC should help to enhance its market acceptability and placing in good stead for when commission rules demanding a rating of certain offerings come into effect.

Market acceptance

"Getting recognition status means that CariCris should now be more accepted in the market and will be officially authorised to rate such bonds and securities," Dass said.

However, Everton McFarlane, the FSC's senior director for securities, stressed that - as is in the case globally - recognition of a rating agency does not translate into the infallibility of the grades a rating agency assigns instruments.

The same applies to CariCris.

"... The business model that CariCris employs is one where the issuer pays for the rating," McFarlane said.

"This gives ample incentive for collusion or unethical behaviour to the formulation of a particular rating."

Indeed, the performance of global rating agencies have fallen under growing scrutiny, and criticism, recently in the face of the sub-prime mortgage crisis, that befell United States financial institutions overly exposed to poorly secured mortgage-backed securities.

The rating agencies had failed to identify the danger signs.

Many of the billions of dollars in packaged instruments that have been written off by major banks and insurance companies, received quality grade status from rating agencies.

Critics say that part of the problem is the fact that issuers pay for the ratings, giving the agencies, which want to ensure future business, incentives to be lenient, if not benign, in their considerations.

There have been growing calls for changes to the system, which would require potential purchasers of the instruments to pay for the service, and the ratings agencies have begun their own introspection.

There are also calls for arms length relations between the various arms of companies with rating agency divisions to avoid conflicts of interest.

Rigorous review

These concerns, notwithstanding, FSC's executive director, George Roper, said that CariCris systems underwent a rigorous review before the endorsement.

The process was deemed to be technologically sound and followed best practices.

Said Roper: "It is an evaluation of the integrity of the process by which a rating is issued, paying particular attention to the independence of the rating agency, the transparency of rating procedures and the corporate governance procedures within a rating agency to resolve conflicts of interest and reduce incentives for unethical behaviour."

CariCris was established since 2004 and did its first rating in April 2005.

It has since completed 26 ratings as at the end of March covering sectors such as banking, securities/capital market, insurance, petrochemicals.

Of the 26, six were for Jamaican companies, the latest being Sagicor Life Jamaica, formerly LOJ.

sabrina.gordon@gleanerjm.com