The U.S. Securities and Exchange Commission (SEC) is scheduled to meet tomorrow to discuss rules to improve oversight of the credit rating industry.
The SEC is trying to make credit agencies more accountable for their credit opinions. One market source said that the idea is that credit agencies should move beyond monetary incentives to get credit ratings right and that the decision tomorrow could provide the incentive to be accurate with ratings in the future.
“The environment until now for the big three rating agency has been an attitude that they could rate anything and sometimes the Wal-Mart solution isn’t the best,” the market analyst said. “If the SEC makes them more accountable then perhaps they will be more incentivized to get it right and less likely to take on business they simply don’t understand fully.”
Market reports indicate that the SEC might require banks and other issuers to disclose preliminary ratings to prevent them from shopping around for better ratings.
The SEC is also considering requiring credit agencies to reveal more information about past ratings so investors could compare their relative performance.
The regulator is also expected to issue a general discussion paper that questions whether credit agencies should be regulated as "experts" under securities law, and thus subject to tougher standards of liability.
Global Regulators on Same Footing
The SEC isn’t the only regulatory body looking to make rating agencies more accountable. Since April, Japan has also been investigating how credit ratings firms determine risk levels for financial products.
The Australian Securities & Investments Commission (ASIC) has also recently said that it will require credit rating agencies to obtain an Australian Financial Services license starting January 2010.
The ASIC is also considering, according to market reports, lifting a rule that prevents Standard & Poor's, Moody's Investors Service and Fitch Ratings from being held accountable for their ratings in product disclosure documents.