A Steep Road to Improve the Accountability of the Credit Rating Industry: the Chinese Way or the Western Way?

Regulators in the US, EU and China embarked on several episodes of reforms to improve the accountability of credit rating agencies after the Financial Crisis 2007–2008. The US reform implemented a new civil liability provision, although the new regime remains weak, largely caused by the regulator’s inability in taking a tough liability approach on powerful credit rating agencies but giving in to the economic demands of the country. In contrast, the EU’s provision is much more balanced; however, it left too much leeway to the national laws’ interpretation. The parameters of civil liability under the Chinese law largely coincide with the Western laws, although with a unique robustness by reversing the burden of proof. The recent reforms improved the accountability of credit rating agencies to some extent, nonetheless, more work is needed to give effect to these regulatory reforms with further collaboration. This paper critically analyses the robustness of the Chinese civil liability regime with the reversed burden of proof, which arguably sits uncomfortably with the Western laws. It calls for an improvement of the current civil liability regime in the US and China by adopting the EU model, which is more feasible to balance the responsibilities of key players in the financial market.