Credit rating agencies are under more scrutiny now than ever before. The fallout from the Parmalat, Enron and WorldCom scandals has led to questions about whether ratings agencies should have picked up on the problems. Consequently, agencies have found themselves under the spotlight and faced with the possibility of state regulation.
Susan Launi, senior European counsel at Fitch Ratings, says the need for state regulation is both unnecessary and impractical. “The view about it is, essentially, that the market is our regulator because if we didn’t produce appropriate ratings the market wouldn’t use us,” she explains.
Launi also refutes any suggestion that rating agencies should be blamed for not spotting the problems with the big blowouts of the last few years. “The most important thing to remember is that there hasn’t been a serious flaw with the rating agencies. These cases [such as Parmalat] involved fraud and entities such as accountancy firms that had a legal obligation to undertake due diligence,” she insists.
Despite Launi’s defence of rating agencies, the EU Parliament recently asked the European Commission to look into rating agencies to see if any action needed to be taken regarding regulation. As part of this process, Launi sent submissions to the Commission on behalf of Fitch.
Regulation accounts for a large part of Launi’s work and, although she is responsible for Europe, the Middle East and Africa (EMEA), she also has to keep an eye on what is happening in the US, as the Securities and Exchange Commission is also conducting its own investigation into rating agencies.
Launi joined Fitch in 2003 to become its first permanent European counsel. Prior to her appointment, lawyers were seconded to London from the agency’s New York office. As head of a three-strong team, she oversees all the EMEA-based legal issues for Fitch. She now has two colleagues that work with her, one with structured finance experience and the other with a corporate commercial focus.
Launi has a strong structured finance background, which is vital to her job. After graduating from Yale Law School, she worked for Davis Polk & Wardwell. She later moved to Belgium to work for De Smedt & Dassesse (which was later taken over by Akin Gump Strauss Hauer & Feld).
Launi then moved to the Brussels office of Mayer Brown & Platt (now Mayer Brown Rowe & Maw (MBR&M)), where she started doing securitisation work, and then later moved to MBR&M’s London operation.
Her last job before joining Fitch was at an alternative risk reinsurer owned by Zurich Financial Services.
The main business of Fitch is, of course, ratings, and from a legal standpoint Launi is deeply involved in this area. The analysts at Fitch are split into four teams: corporate, sovereigns, financial institutions and structured finance. It is the last of these that Launi is engaged in and which accounts for a large proportion of Fitch’s £2.5m annual legal spend. As Launi explains: “Structured finance is a very lawyer-intensive area. Whenever we rate a transaction that’s a structured finance transaction, we typically use outside counsel.”
The work of the outside counsel is vital to ensure that Fitch gives the best possible ratings. “The role of the outside counsel is to assist us in the review of the legal structure,” says Launi. “It’s about letting the analysts know where the structure is not watertight and where there are holes.”
For most transactions, Launi and her team will oversee the checking process carried out by the outside firm. But when the agency is asked to rate a new type of financial instrument, Launi gets to play a more active role. “Sometimes we get involved from the beginning if, for instance, a transaction is unusual,” she explains. “The analysts will seek our input as to what we think about the structure and what we think are the things they should consider for the purpose of their analysis.”
Launi must also step in if the opinions between her own team and those of the outside law firms differ.
Freshfields Bruckhaus Deringer and Sidley Austin Brown & Wood are the firms Launi instructs most frequently, but with the agency working on so many transactions in many different institutions, Launi has a long list of firms she will instruct.
Despite all the safeguards, the ratings process is a tricky business and Launi admits that sometimes Fitch does get it wrong, but says the agency makes sure it covers its back. “We’re very clear that what we issue are opinions, they’re not facts, and we do the best we can and sometimes we get it wrong,” she states.
And Launi has a warning for anybody who may seek to settle the matter through the courts. “Different people will threaten to take you to court because they think that’s a powerful thing to do or say – but so far,” she says, “nobody’s yet defeated us in the courts.”
Senior European counsel
|Employees||560 for Europe, the Middle East and Africa (Emea); 1,700 worldwide|
|Annual legal spend||£2.5m|
|Senior European counsel||Susan Launi|
|Reporting to||General counsel Charles Brown and EMEA head Paul Taylor|
|Main law firms||Freshfields Bruckhaus Deringer and Sidley Austin Brown & Wood|