The conflict of interest in credit-rating agencies arises because security issuers pay to have securities rated and, as a result, the agencies' ratings may be biased upward .
Explanation:
Scoring companies develop one of the financial system's main innovations. Ratings have been in existence for more than a century and have been extending their use to cover modern financial instruments and contracts constantly.
The transfer of money from issuers to rating firms creates an value gap between rating providers (agencies) and rating consumers (such as investors). Any contractual partnership between raters and consumers is theoretically relevant in this regard.
A charge-based conflict of interest between rating agencies and protection issuers: because, by the premium they produce, the ratings earned are upwardly proportionate for an organization.
