Misleading and Deceptive Conduct in Global Financial Markets: Implications for Regulators, Financial Intermediaries and Credit Rating Agencies

In the immediate aftermath of the global financial crisis credit rating agencies (CRAs) came under close scrutiny for the role they played in the crisis. The CRAs occupied a pivotal role as de facto regulators and gatekeepers of financial markets. Investors relied on the opinions as to the credit worthiness of complex residential mortgage-backed securities (RMBS) and collaterised debt obligations (CDO) that were issued by CRAs. At the peak of the crisis, Moody's and Standard and Poor's were forced to downgrade their AAA-rated securities, which led to considerable financial losses for holders of RMBS and CDO securities. The widespread losses led to enforcement actions in the United States, where the Department of Justice secured substantial settlements against both Moody's and Standard and Poor's. Meanwhile, in Australia end-users that included local authorities were successful in their own personal action against financial intermediaries and ratings agencies for issuing and marketing structured securities that were found to contain misleading and deceptive credit ratings.