Perceptions of the implementation of credit rating agency regulation in South Africa

Abstract

Background: Credit rating agencies (CRA) played a key role in the global financial crises of 2007/2008 which led to the introduction of CRA regulation. Aim: Using Giddens’ theory of modernity as a framework, this article analyses experts’ perceptions of the implementation of the CRA regulation in South Africa. Setting: This article focussed on experts’ perceptions of CRA regulation in South Africa. Method: This qualitative article was conducted using detailed interviews with South African experts in the investing and credit rating industries. Interviews were conducted in 2013 and 2023. An interpretive approach was adopted to analyse the data into themes, providing insight into the perceptions relating to the introduction of CRA regulation in South Africa. Results: While the introduction of CRA regulation in South Africa is a mechanism used to legitimise the capital system and encourage foreign investment, its applicability, considering the size of the country’s CRA market, is contentious. Credit rating agencies’ current business model is prone to conflicts of interest and no viable alternatives are available. Consequently, investors need to exercise judgement over their investment decisions instead of outsourcing their due diligence requirements to CRA without careful consideration. Conclusion: Credit rating agencies’ regulation in South Africa has further cemented CRA’s position in financial markets in line with global trends in this industry. Contribution: This article will allow policymakers, market participants and researchers to understand the perceptions of the CRA regulation in South Africa from a social constructivist perspective.