Bank of Canada research to be published in next month's FSR notes that there are some natural self-correcting market forces at work, which should help to ensure that rating agencies improve their rating process in the future. There may still be a useful role for regulators in fostering an industry-led code of conduct and in reconsidering the role that ratings play in various regulations.
But they should avoid any knee-jerk response to calls for stricter regulations for rating agencies. Allowing market forces to chart the route to the desired outcome is generally preferable to burdensome regulation, which may have the unintended consequence of absolving the regulated entity from responsibility for its ratings.