"Improving the System Takes Priority Over Expanding Entry into Credit Rating Industry"

Disclosure of Competition Assessment Results for Credit Rating Services
"Concerns Over Side Effects and Market Confusion if New Credit Rating Agencies Increase"

[Asia Economy Reporter Kim Jin-ho] The Financial Services Commission (FSC) stated that considering the characteristics of the credit rating industry and the overall market situation, the focus should be on promoting competition through institutional improvements rather than expanding market entry. It analyzed that if new credit rating agencies increase rapidly, the negative effects and market confusion would outweigh the benefits of improving credit rating quality.

On the 12th, the FSC announced the "Competition Evaluation Results and Policy Directions for the Credit Rating Industry, etc." based on these points.

According to the FSC, South Korea's credit rating market currently operates with a total of four agencies: three fully licensed and one partially licensed. The three major agencies continue to evenly split the market, which is worth approximately 140 billion KRW annually, into thirds.

However, the FSC emphasized that considering the characteristics of the credit rating industry and the current market situation in South Korea, the focus should be on promoting competition through institutional improvements at this point in time. This is based on the judgment that allowing new entries would cause more harm than good.

The credit rating industry requires long-term accumulation of trust and reputation, and the market structure remains issuer-centered. Especially when considering differences in market size, diversity of institutional investors, and credit rating capabilities compared to major overseas markets such as the United States, the FSC foresees that a rapid expansion policy for new entries could lead to more negative effects and market confusion than improvements in credit rating quality.

Therefore, the FSC stated that policy efforts should be concentrated on strengthening market discipline and further institutional improvements to enhance credit rating quality. It also suggested that, for improving predictability and effectiveness of future market entry, a mid- to long-term review of the licensing system is necessary.

Meanwhile, the Competition Evaluation Committee also disclosed the results of discussions on the bond rating industry. Although the bond rating market is highly concentrated, the concentration is on a declining trend.

Accordingly, the committee stated, "Since a registration system is applied, it is possible to flexibly respond to entry and exit demands according to changes in domestic market conditions," and added, "Considering that it is an important infrastructure for protecting fund investors, it is necessary to comprehensively consider the market environment if additional entry demand arises in the future."

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