Comment: Risk-ratings could turn out to be a nightmare
Friday 11 April 1997
By contrast the SFA's parent body, the SIB sees dangers in such an approach. It would clearly be very damaging for any firm to receive an adverse rating. As Andrew Large, the SIB's chairman, has pointed out, the effect might be similar to an adverse credit assessment on a bank, causing a run on deposits. Firms in receipt of a favourable rating, on the other hand, would be tempted to use it as a marketing tool.
The SFA arguably has too much power already. There has been a notable increase in recent years in the volume of complaints among City firms about supposedly oppressive regulation. The introduction of a publicly disclosed rating system would give the SFA the power to play God, to make or break companies and livelihoods. Obviously the City needs to be effectively regulated, but that cannot be right.
The SFA is already far too commonly used as a competitive tool in the City. If you don't like what your rival is doing, it is all too easy to stop it with a call to the SFA. Quite frequently the effect is to stifle perfectly legitimate innovation. The imposition of a rating system would be a much more sinister development, for it should be customers and clients, not big-brother regulators, who decide on whether a company is worth doing business with. What are the criteria the SFA is planning to use, and will there be channels of appeal? The whole thing sounds like a nightmare, and in truth is unlikely to be of much assistance to anyone.
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