Global Watchdogs Intensify Scrutiny of Private Credit Ratings

The private credit industry is currently under increased scrutiny from leading global regulators regarding the ratings assigned to debt within the $1.7 trillion market, according to sources familiar with the situation, as reported by Bloomberg News.

The Financial Stability Board (FSB), which is responsible for monitoring global financial risks, has raised significant concerns about the potential for “ratings shopping” in private markets. This practice allows firms to seek grades from multiple rating agencies and select the most favorable one, raising questions about the integrity of the ratings process.

Officials at the Basel-based FSB are particularly worried that the ratings in private credit do not adhere to the same stringent rules that govern securitization. Following the global financial crisis, regulations were introduced that typically require the use of multiple independent credit ratings and enforce strict management of conflicts of interest in securitization processes.

These issues are part of the FSB’s broader examination of risks associated with non-bank financial institutions, which encompass a wide range of entities including hedge funds, asset managers, and insurers. However, sources indicate that the FSB’s immediate focus is on identifying risks and vulnerabilities rather than making specific policy recommendations.

A notable case highlighting these concerns involves a German pension fund that experienced over €1 billion in losses due to its investments in private markets. This fund has raised questions about the reliability of certain credit ratings, contributing to growing warnings about valuation risks in this rapidly expanding asset class. Bloomberg reported on this development on Friday, emphasizing the need for greater scrutiny.

In the UK, the Bank of England (BOE) is set to investigate the role of ratings firms as part of a “system-wide exploratory scenario” exercise that will assess private markets. This stress test, announced earlier this month, aims to evaluate how private markets would react to a significant economic shock. However, the results of this exercise are not expected to be released until 2027, and the BOE has yet to conduct detailed work on potential policy actions regarding ratings firms.

The FSB has not provided immediate comments on these developments, and the BOE has also declined to comment at this time.

This heightened scrutiny follows reports from last month that the SEC is investigating Egan-Jones Ratings Co, a prominent provider of private credit ratings. Additionally, UBS Group AG chairman Colm Kelleher has expressed concerns about “ratings arbitrage” within the insurance industry, which has seen rapid growth over the past 15 years due to stringent lending restrictions imposed on banks.

Photograph: Pedestrians on Wall Street. Photo credit: Michael Nagle/Bloomberg

Copyright 2025 Bloomberg.

The private credit industry is currently under increased scrutiny from leading global regulators regarding the ratings assigned to debt within the $1.7 trillion market, according to sources familiar with the situation, as reported by Bloomberg News.

The Financial Stability Board (FSB), which is responsible for monitoring global financial risks, has raised significant concerns about the potential for “ratings shopping” in private markets. This practice allows firms to seek grades from multiple rating agencies and select the most favorable one, raising questions about the integrity of the ratings process.

Officials at the Basel-based FSB are particularly worried that the ratings in private credit do not adhere to the same stringent rules that govern securitization. Following the global financial crisis, regulations were introduced that typically require the use of multiple independent credit ratings and enforce strict management of conflicts of interest in securitization processes.

These issues are part of the FSB’s broader examination of risks associated with non-bank financial institutions, which encompass a wide range of entities including hedge funds, asset managers, and insurers. However, sources indicate that the FSB’s immediate focus is on identifying risks and vulnerabilities rather than making specific policy recommendations.

A notable case highlighting these concerns involves a German pension fund that experienced over €1 billion in losses due to its investments in private markets. This fund has raised questions about the reliability of certain credit ratings, contributing to growing warnings about valuation risks in this rapidly expanding asset class. Bloomberg reported on this development on Friday, emphasizing the need for greater scrutiny.

In the UK, the Bank of England (BOE) is set to investigate the role of ratings firms as part of a “system-wide exploratory scenario” exercise that will assess private markets. This stress test, announced earlier this month, aims to evaluate how private markets would react to a significant economic shock. However, the results of this exercise are not expected to be released until 2027, and the BOE has yet to conduct detailed work on potential policy actions regarding ratings firms.

The FSB has not provided immediate comments on these developments, and the BOE has also declined to comment at this time.

This heightened scrutiny follows reports from last month that the SEC is investigating Egan-Jones Ratings Co, a prominent provider of private credit ratings. Additionally, UBS Group AG chairman Colm Kelleher has expressed concerns about “ratings arbitrage” within the insurance industry, which has seen rapid growth over the past 15 years due to stringent lending restrictions imposed on banks.

Photograph: Pedestrians on Wall Street. Photo credit: Michael Nagle/Bloomberg

Copyright 2025 Bloomberg.