When The Raters Get Rated: What The Fitch–Kroll Feud Says About Oversight And Accountability

In a rare and unusually public confrontation between two of America’s credit rating agencies, a recent feud between Fitch Ratings and Kroll Bond Rating Agency (KBRA) has laid bare deeper concerns about the integrity and governance of credit ratings in private markets. The dispute centers on a withdrawn academic study that questioned whether smaller rating agencies issue more favorable ratings than their larger peers—a claim Fitch cited to cast doubt on KBRA’s private credit assessments. KBRA, in turn, accused Fitch of misleading the market and undermining competition.

While the specific disagreement may seem isolated, it exposes a broader vulnerability: who holds credit rating agencies accountable when their judgments diverge—and what happens when those differences could materially distort investment decisions across a multi-trillion-dollar sector?

A Disputed Study and an Escalating Accusation

The controversy began with a study, since removed from public circulation, which purported to show that smaller rating agencies tended to assign higher credit ratings to private credit instruments compared to more established firms. Fitch referenced the study to suggest that such generosity could mislead market participants about the true credit risk of privately held debt—a concern that carries weight in insurance portfolios increasingly exposed to these opaque assets.

KBRA reacted sharply, stating that Fitch was “misleading market participants” by using a non-peer-reviewed and now-retracted study to cast aspersions on a rival. The dispute escalated into a direct and rare public clash between two rating firms, raising industry-wide questions about trust, objectivity, and regulatory scrutiny.

Why Private Credit Is the Flashpoint

The fight is not happening in a vacuum. Private credit has grown rapidly over the past decade, driven by investor demand for higher yields and the retrenchment of traditional lenders post-2008. Insurers, in particular, have increased their allocations to privately originated corporate loans and asset-backed deals—markets where publicly available price discovery and financial reporting are limited. In these environments, credit ratings often serve as the sole independent benchmark of risk.

Yet this reliance has created a pressure point. If ratings vary widely between agencies—and if those differences reflect commercial pressures rather than analytical rigor—it undermines the entire foundation of risk assessment in private credit markets.

The Power—and Responsibility—of Credit Rating Agencies

Credit rating agencies are core pillars of modern financial markets. Their opinions influence everything from capital reserve requirements to investor allocations and debt pricing. In the US, those designated as Nationally Recognized Statistical Rating Organizations (NRSROs) enjoy considerable regulatory standing, with their assessments used in compliance frameworks under the SEC, NAIC, and Federal Reserve.

But with that privilege comes responsibility. Agencies must demonstrate not only technical competence but also impartiality and consistency in how they apply ratings methodologies. The issuer-pays model, under which issuers compensate agencies for their own ratings, has long been criticized for introducing inherent conflicts of interest. These conflicts become more acute in niche and competitive segments—such as private credit—where new entrants like KBRA are attempting to expand market share.

Oversight in Question

Regulatory oversight of credit rating agencies in the US rests with the SEC’s Office of Credit Ratings. In the aftermath of the 2008 financial crisis, reforms were enacted to enhance transparency and mitigate conflicts, including mandated disclosures of methodologies and historical rating performance. However, enforcement has remained relatively passive, and the system relies heavily on agencies self-certifying the robustness of their models.

One major limitation is the lack of structured mechanisms to compare ratings across agencies on a consistent basis. There is no central authority tasked with auditing whether a ‘BBB’ from one firm is equivalent in quality and underlying assumptions to a ‘BBB’ from another. Nor is there a formal process for resolving public disputes of the type now playing out between Fitch and KBRA.

Market Implications

For insurers, pension funds, and other institutional investors that rely on credit ratings to evaluate and report on portfolio risk, discrepancies between agencies can be more than just a nuisance—they can be a source of systemic risk. Diverging opinions could distort capital allocation, misstate reserve adequacy, and create regulatory arbitrage. If market participants begin to perceive that ratings are inconsistent, or worse, strategically lenient, confidence in the asset class may erode.

The Fitch–Kroll clash also raises reputational risks for the ratings industry itself. In a market as complex and opaque as private credit, the integrity of the rating process is a critical anchor. Public disputes among rating firms suggest deeper fractures in methodology and governance, and potentially signal to investors that the ratings process is subject to competitive distortion.

A Framework for Accountability?

Resolving these concerns will require more than polite industry dialogue. One option is for regulators to mandate greater disclosure and comparability in private credit rating methodologies, including the publication of post-issuance performance data such as default and recovery rates by agency. This would enable more objective assessments of rating reliability over time.

Another approach is to establish a third-party benchmarking body to evaluate the consistency of ratings across agencies, especially in asset classes prone to wide subjective interpretation. Such an institution could play a role similar to an accounting oversight board, issuing public reports on rating performance and flagging outliers.

There is also room for the SEC or NAIC to play a more active role in setting standards for private credit risk assessment, including limiting the use of ratings that diverge materially from industry norms without documented justification.

Conclusion

The spat between Fitch and KBRA is not just an isolated quarrel—it is a reflection of the growing tension within a rapidly expanding segment of the capital markets. As private credit continues to grow, and as investors lean more heavily on third-party opinions to assess illiquid assets, the importance of rating agency integrity will only increase.

Without greater oversight, transparency, and mechanisms for dispute resolution, the credibility of ratings in private markets may become a casualty of commercial rivalry. For an industry that plays such a central role in pricing risk, that is a warning regulators and investors alike would be unwise to ignore.

Author: Ricardo Goulart