SEC Imposes New Rules on Credit Rating Agencies

Earlier this week, the Securities and Exchange Commission (SEC) beefed up its rules governing credit rating agencies.  While is hoped that the tougher regulations will put an end to the types of behaviors that contributed to the recent financial collapse, critics of the SEC said they do not go far enough.

Bond-rating agencies like Standard & Poor’s and Moody’s assess the credit worthiness of debt issues, such as corporate and municipal bonds.  According to The Wall Street Journal, there have been concerns that these agencies, driven by conflicts of interest, boosted mortgage investments that have since collapsed.  Such firms are paid fees by the issuers of the debt instruments they rate.

An SEC report released in July found  “serious shortcomings” in the practices at Standard & Poor’s and Moody’s, as well as Fitch’s Ratings.  Among the problems cited by the SEC report were a lack of disclosure of conflicts of interest, and a lack of oversight of such conflicts, the Journal said.

According to, on Wednesday, the SEC adopted new rules to crack down on conflicts of interest at the rating agencies.  One prohibits credit raters from rating their own work, and another that would require them to provide the SEC with an annual report of credit actions, such as downgrades or upgrades, Reuters said.

According to The Wall Street Journal, the SEC did not act on  more controversial changes that would designate different ratings for structured products, such as mortgage bonds and corporate debt, and that would reduce agency rules’ reliance on the use of credit ratings for such things as investments by money-market mutual funds.  Wall Street banks and real estate interests were opposed to those rules.

The adoption of the new rules did not satisfy many critics of the credit rating agencies.  “None of the rules adopted today are a substitute for the larger regulatory reform that is coming next year,” New York Sen. Charles Schumer, a senior Democrat on the Senate Banking Committee, told the Wall Street Journal on Wednesday.

This entry was posted in Legal News, Stock Fraud. Bookmark the permalink.

© 2005-2019 Parker Waichman LLP ®. All Rights Reserved.