My Week If there was any justice in the financial world, the people who run the big debt rating agencies would be hanging from lamp-posts along with the investment bankers for the way in which their activities contributed to the 2008 financial crash. But they emerged pretty well unscathed, barring a few uncomfortable sessions before congressional committees. Politicians threatened all sorts of legislative nasties at the time, but it turned out to be all sound and fury signifying not very much.
Today it is as if nothing had happened. They continue to operate one of the cosiest monopolies in the world; the big three – Moody's, Standard & Poor's and Fitch – are said between them to account for 90 per cent of the international debt ratings business.
So it was with some satisfaction that I heard this week over breakfast in The Ivy of a plan to launch a rival – one, moreover, with its roots for the most part in high-growth emerging markets.
What seems to have happened is that home-grown debt-rating agencies in South Africa, Malaysia, Brazil and India have noticed that they have a lot of fast-growing companies that will shortly need to tap the international capital markets. Rather than see these companies forced to become clients of the established players to get an international rating, they have teamed up to launch a jointly owned alternative, with a fifth member from Portugal, which gives them an EU presence and a channel for the EU recognition they need to access the capital markets here.
The new business, known as Arc, promises to do a much better job, says it will draw heavily on the local knowledge of its founding firms, and for good measure will make an assessment of systemic and financial stability to produce an all-round better product. The world has changed, they say, and it is time ratings techniques and assessments changed to reflect this.
They would say that, wouldn't they, but again if they are going to stand any chance of breaking the stranglehold of the existing ratings agencies they will have to focus on a point where they are weak – in this case mid-cap companies – and offer a better product. So they have a pretty powerful incentive to do it better.
If it works, though, it could be great business for London, the capital market they most want to tap into. Apparently there are 8,000 mid-sized companies in the world, with a turnover of $1bn (£600m), and a quarter of these are in emerging markets. By 2025 it is forecast there will be 15,000 such companies, of which half will be in emerging markets. So there is clearly a huge potential demand for capital to finance the growth of these businesses, many of which are already clients of the domestic ratings agencies financing Arc. So if only a tenth come through to the international marketplace and they successfully make them clients of Arc, both they and the London markets will have reason to celebrate.