The dual-rating regime refers to such a rating system that consists of two rating systems: the sovereign-owned rating system (the traditional) and the non-sovereign-owned one (the new). In other words, we construct a new rating system to participate in rating matters while keeping the traditional one intact. The new system’s involvement in credit rating is not to be fulfilled through competition with the traditional system, but rather through an institutional arrangement, meaning rating regulations stipulate that any rated entity must be simultaneously rated by the aforementioned two rating systems.
Universal Credit Rating Group (UCRG), manifesting the common mindset of the international community to reform the global rating system, is the representative of the new type of global rating system. Its nature, mission and objective embody the common interest of humanity, fairness and justice, and the demand for international credit ratings by global capital flow necessary for the world economic development. Therefore, with advantages unreachable by the traditional credit rating system, it should be granted an institutional niche.
Dual rating system is the business model of UCRG. This unique model will be put into practice by the approach that governments of the jurisdictions where UCRG operates grant UCRG a license to conduct credit rating business in the local rating markets, for UCRG represents the common interests of mankind.
1. Why dual rating system should be adopted
The dual rating system refers to a new rating pattern with the current international rating system coexisting with a newly-constructed international rating system in the world rating community.
The existing international rating system is dominated by incumbent western CRAs, on which economic activities are heavily reliant. What has happened since the outbreak of the global credit crisis in 2008 has presented to the entire world the fact that it is imperative to reform the current international rating system which is anything but fair as it has failed to assume the responsibility of assigning independent and impartial ratings to entities across the globe and imposed threats to the sound development of the world. However, it is impossible to make the existing rating system impartial or to destroy it. The only way out is to forge a new international rating system that represents the common interests of mankind and that is capable of assigning impartial and independent ratings to entities across the world. The dual rating system is an optimum option to tackle problems plaguing the international rating community. In this sense, it can be anticipated that two different international rating systems will exist in parallel.
We need to look at the dual rating system from the institutional dimension as it is an institutional design which decides that with institutional arrangements issuers and/or issues will be rated twice, with one rating assigned by a CRA representing the current rating system and the other rating assigned by UCRG representing the new rating system, which is materially different from the double ratings under the traditional singular rating system.
(1) What is the difference between the two rating systems?
Major differences include:
1) They represent different interests due to the nature of two rating systems.
The existing rating system represents the interests of a CRA’s home country.
The new rating system represents the common interests of mankind.
2) The ratings assigned by the two rating system are different due to their rating philosophies.
The rating philosophy of the current international rating system demonstrates that western ideology and subjective assertions are employed to develop rating methodologies and explain risks. Ratings assigned with double standards block the free flow of rating information across borders or industries.
The rating philosophy of the new international rating system indicates that the objective rules governing credit risk formation is considered in the process of developing rating methodologies and unveiling risks. Ratings assigned with the universally unified rating criteria secure consistent, comparable and flowable rating information.
(2) What is the relationship between the two rating systems?
The most conspicuous feature of the current international rating system is it is sovereign-owned in nature. Practice has proven that this regime is dominated by CRAs of a sovereign country, and their standpoint, ethics and criteria represent the particular interests of their home country. For long, there has not been a power that could check the systematic risks caused by the super hegemony in rating.
The most conspicuous feature of the new international rating system is it is non-sovereign-owned in nature as it is spearheaded by UCRG which doesn’t stand for the interests of any particular country or interest group. UCRG is established by representative institutions, including local CRAs from different parts of the world, defending the common interests of the international community.
While existing in parallel, the two systems different in nature offer rating products epitomizing their standpoint and values in rating, make more options available to investors, encourage rating quality improvement through competition in rating technology and counterbalancing systemic risks in the rating sector. In this sense, coexistence, inclusiveness, mutual complementation and counterbalancing defines the relationship between the old rating system and the new one.
2. Dual rating system is UCRG’s business model
The dual rating business model adopted by UCRG is quite unique. The objective reason for creating such a business model is that the deeply-embedded flaws of the existing global rating system cannot be resolved within the system itself, thus only by building a new type of global rating system can we provide the world with fair and impartial rating information, which leads to the formation of two rating systems representing two different natures. UCRG is the very rating information provider that represents the new type of international rating system.
The dual rating business model boasts unparalleled advantages compared with ordinary business models.
(1) The dual rating business model, designed to tackle the flaws in ratings across the world, is an inevitable choice when it comes to reforms of the global rating system. A perfect unison of what and how, it epitomizes a concrete model of a new type of global rating system.
(2) The dual rating business model reflects humanity’s high expectation for setting up an impartial and rational new order in the global rating community in the post-crisis era. It is capable of getting wide support from the international community for representing the way forward and for having the ideological foundation that enables it to achieve its development strategies, which makes it irreplaceably advantaged in competitions.
(3) The dual rating business model is able to cover the entire global rating market. As the representative of the common interest of humanity, it engages in rating practices in every country with a consistent international rating scale, achieving the globalization of ratings for all countries, realizing consistency, comparability and flowability of rating information for the first time in human history, and creating new momentum for cross-border capital flow. The dual rating business model is a creation beneficial to the entire humanity, thus will be welcomed by all nations.
(4) The dual rating business model does not imply that the two rating systems compete with each other for business opportunities, for ratings assigned by both systems are institutionally recognized, complementary to each other and could together counterbalance institutional rating risks. UCRG and other CRAs would find their own proper places in the respective system they belong to.
(5) The dual rating business model is extremely strong in profitability. The dual rating regime embodies the common interest of humanity and fairness and justice, therefore the international community has every reason to make it a global institutional arrangement covering rating practices of all countries and economies, making dual rating business model a profitable model with institutional guarantee.