Credit Ratings Agencies Face Tough Regulation amid Rules Release

The Securities and Exchange Commission has unveiled mandates designed to increase transparency and accountability in the credit ratings process.

An SEC release noted the new requirements will address areas like conflicts of interest, disclosure of credit rating performance statistics, standards from training/experience/competence of credit analysts and procedures to protect integrity at agencies, most notably Moody’s Investors Service, Fitch Ratings and Standard & Poor’s (S&P). The various new rules will become effective during the 2015 calendar year, some as early as January 1.

The rules are part of the ongoing implementation of the Dodd-Frank Act, passed in response to various problems (quick ending of industry bubbles, widespread risk-taking, insufficient regulatory oversight) that led to last decade’s massive recession. Congress has often scapegoated the so-called “Big Three” ratings agencies, particularly S&P (which once reduced the US’s “AAA” credit rating and publicly chided Congress for partisan gridlock while doing it), for poor performance in the run-up to the crash.

Agency officials, while noting they are still reviewing and analyzing some of the new mandates, said they will comply in full and, in theory, support the idea of a facelift/update on rules of the road governing raters.  

- Brian Shappell, CBA, CICP, NACM staff writer

For a detailed information release and fact sheet released by the SEC, click here.

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