Liability of credit rating agencies

Credit rating agencies play a central role in the stability and efficiency of global capital markets. Their role is to bridge the information asymmetry between issuers of financial instruments and investors in those instruments. CRAs are considered to have played a significant role in creating the 2007 crisis in the US mortgage market by underestimating the credit risk of subprime mortgages. Furthermore, the institutions are considered to have changed their erroneous credit ratings too late when the crisis was a fact. The institutions are also considered to have contributed to the emergence of other crises, such as the 1997 economic crisis in several Asian countries and the bankruptcy of the US energy company Enron in 2001. Despite the significant impact of credit rating agencies on capital markets, case law shows that courts have been very reluctant to impose liability on credit rating agencies to compensate, for example, investors who have suffered damage as a result of negligent credit ratings. However, there is strong support in the doctrine that CRAs should be subject to liability commensurate with the power they actually exercise in the capital markets. The project raises a number of issues related to the liability of credit rating agencies for negligent credit ratings: adequacy issues, culpability assessment and conflicts of interest. The project covers liability for both contractual and non-contractual damage.