The potential of conflicts of interest arising in the activities of credit rating agencies in Ukraine

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This paper presents a comprehensive system of 38 indicators, which allows identification of possible endogenous sources and evaluation of the potential of conflicts of interest arising both at the corporate (in models of ownership, business and financial activities, corporate governance and organizational structures) and operational (analyst) levels of credit rating agencies (CRAs). Testing of proposed system of indicators was carried out based on the content analysis of the public information on the activities of five authorized credit rating agencies of Ukraine.
It is determined that at the beginning of 2017 the most sensitive to the risk of conflicts of interest were “Standard Rating” (74% of threat signals of the total number of indicators), “Expert Rating” (57%) and “Rurik” (37%). The highest potential of conflicts’ of interest escalation was identified in the models of financial activities (80% of threat signals of the total number of indicators of that group) and models of ownership of Ukrainian CRAs (63%).
The estimations of the risk level are proposed to be regarded mainly as signals of the potentially high sensitivity of the particular CRA to the risk of conflicts’ of interest escalation.
Such signals, in particular, can be used by the regulators for carrying out remote monitoring activities of CRAs, for adopting supervisory and regulatory decisions. In turn, managers and owners of rating agencies can conduct a more detailed analysis of the detected potential sources of conflict of interest with the aim of identification, localization, and elimination of shortcomings in the system of conflict of interest management.

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    • Figure 1. The total number of detected signals about the threat of conflicts’ of interest escalation in the activities of Ukrainian CRAs (at the beginning of 2017)
    • Table 1. The warning signals concerning the potential of conflicts of interest in models of ownership of CRAs in Ukraine
    • Table 2. The warning signals concerning the potential of conflicts of interest in models of business activities of CRAs in Ukraine
    • Table 3. The warning signals concerning the potential of conflicts of interest in models of financial activities of CRAs in Ukraine
    • Table 4. The warning signals concerning the potential of conflicts of interest in models of corporate governance and organizational structures of CRAs in Ukraine
    • Table 5. The warning signals concerning the potential of conflicts of interest in models ensuring the independence of employees of CRAs in Ukraine