The American Securitization Forum (ASF) is opposing the creation of a board by the Securities and Exchange Commission (SEC) that would choose which rating agency is allowed to new-issue securitizations.
The idea to establish a board was initially introduced by Senator Al Franken as part of the Dodd-Frank legislation but was not ‘mandated’ in the final bill. Under the Act, however, the SEC is required to consider the idea and report back to Congress by July 2012.
The SEC is specifically charged with considering whether a board would create a moral hazard for the federal Government.
Creating a public utility or a self-regulatory organization to select credit rating agencies to initially rate all securitizations would create a moral hazard, be anti-competitive and be difficult and costly to implement, the ASF told the SEC in a letter.
The trade group instead supports a package of reforms known as the Rule 12g-5 Program which ensures that all agencies have the opportunity to rate new deals, as well as establishing strict guidelines separating analysts from sales and marketing efforts at the rating agencies.
"Our members fully agree with the need for appropriate reforms with respect to the credit rating process," commented Tom Deutsch, executive director of the ASF. "However, we also believe that the Rule 17g-5 Program, with some modifications, coupled with the many other reforms required under Dodd-Frank will better serve investors and the public interest than the creation of a board which would mandate use of rating agencies favored by that board."