association française
de la gestion financière

Paris, 28 July,2003

Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549

Comments of the Association Française de la Gestion Financière (AFG) on the Securities and Exchange Commission (SEC) public consultation on Rating Agencies and the Use of Credit Ratings under the Federal Securities Laws (file n° S7-12-03).

Dear Mr. Katz:

We are grateful to you for giving us the opportunity to send our comments regarding the credit rating agencies, and to express the position of the French asset management industry on that important matter.

The "Association Française de la Gestion Financière - AFG" is the trade association representing the French asset management industry. In our country, more than 500 management companies take care of nearly 1.500 billion Euros of assets, including 860 billion Euros through collective investment schemes (2nd rank in the world after the United States), and the balance in the form of discretionary portfolio management. In France, asset management concerns more than 10 million investors, on behalf of whom our member companies are investing.

Considering the different points that have been raised in the questionnaire, we would like to emphasise the following issues:

  1. Nowadays, as financial markets, as well as major issuers, have acquired a worldwide scope that cannot be limited to investors from a single country or a single regional area, we would strongly welcome, on the very sensitive present issue (credit rating agencies) an appropriate and much closer co-operation between the United States Securities and Exchange Commission (US SEC) and other regulators. Those latter could range from national institutions (in France the "Commission des Opérations de Bourse - COB" and the "Conseil des Marchés Financiers - CMF" soon to be merged with the creation of the "Autorité des Marchés Financiers - AMF") to regional ones (in Europe the "Committee of European Securities Regulators - CESR" or the "European Commission") and finally to world institutions (like IOSCO or FSF). Such a strategic approach would promote a common understanding of the rating subject for issuers as well as for investors anywhere in the world, harmonised worldwide recognition standards and control mechanisms of rating agencies, and possibly trigger co-ordinated action when necessary.

  2. We would also support measures from the regulators to increase the number of registered credit rating agencies (NRSRO), in order to develop a stronger competition for the benefit of the investors. However, a balance must be found between three potentially conflicting aims. The first one is to promote competition between rating agencies and to allow new ones to enter the market. The second is to make sure that only highly qualified agencies are recognised, obviously an important aim for the investors. The third aim is to make sure that a level playing field is established for the long run. The above-mentioned increased co-operation between regulators should help to find the proper balance. Asset managers are ready to participate to discussions on the subject.

  3. The business model of rating agencies that consists in invoicing their services to the issuers, has not, to our knowledge, created deontological problems similar to those of some financial analysts during the latest financial market crisis. However, given the very important role that credit rating agencies play in world financial markets there is clearly a need for them to promote the highest ethical standards. Therefore we would also support a voluntary introduction by the agencies of a "code of ethics" or of "code of conduct rules", of course under the supervision of the regulators. Any regulatory constraints preventing the agencies from discussing that matter (it has been said that the US Department of Justice anti-trust rules were having that effect) should be thus carefully assessed.

  4. Finally, we are presently experiencing the development of ratings of investment funds management companies, and of investment funds themselves. Such practice should be also carefully monitored in the future.

We would be happy to discuss the points made in this response if that would be helpful.


Yours sincerely

Pierre Bollon Chief Executive