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The world's largest credit-rating companies played a key role in the global credit crisis, according to a survey of Chartered Financial Analysts.

Moody's Investors Service, Standard & Poor's, Fitch Ratings and DBRS contributed to the crisis, according to 71 per cent of respondents to The Globe and Mail – CFA Institute Survey this month. Thirty per cent of those who answered said debt ratings lack credibility, compared with 24 per cent who found them sound.

Rating companies came under fire during the credit crisis three years ago for their role in assigning top grades to financial products that were based on low-quality U.S. mortgages with a high risk of default. Banks and mortgage companies faced massive losses when the subprime-mortgage market collapsed, freezing up credit worldwide.

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Holders of the CFA designation were split on a proposal to remove rules and laws requiring credit ratings, with 39 per cent opposed to the change and 37 per cent in favour. Most respondents supported greater disclosures by credit-rating companies, and greater oversight of them.

"The oligopoly granted to [credit rating agencies]in regulation and law has perverted the system," Jim Allen, head of capital markets policy at the Charlottesville, Virginia-based CFA Institute, said in an interview. "If your goal is to improve the quality of the ratings, then you have to remove that captive market and put them in competition with people who may be doing a better job."

When asked about the main reason why the European crisis is affecting Canada less than other countries, the response that got the most support, 74 per cent, was "bank regulation."

"What is surprising is that Canada is unique in that respect, compared with other developed nations," Mr. Allen said.

The U.S. Financial Crisis Inquiry Commission blamed the country's three leading ratings providers – Moody's, S&P, and Fitch – for having erroneously assigned top ratings to risky financial instruments, such as mortgage-backed securities and collateralized-debt obligations.

"We conclude the failures of credit rating agencies were essential cogs in the wheel of financial destruction," the commission said in its report, submitted in January. "The three credit rating agencies were key enablers of the financial meltdown. The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval.

"Investors relied on them, often blindly. In some cases, they were obligated to use them, or regulatory capital standards were hinged on them. This crisis could not have happened without the rating agencies. Their ratings helped the market soar and their downgrades through 2007 and 2008 wreaked havoc across markets and firms."

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The Chartered Financial Analyst designation is a key qualification for investment professionals. About 100,000 analysts worldwide hold the charter, according to the website of the CFA Institute.

The Globe and Mail – CFA Institute Survey was done by e-mailing 13,292 CFA Institute members in Canada, 638 of whom responded. The poll, conducted between Nov. 15 and 18, has a margin of error of 3.8 per cent.

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