SEC may seek more disclosure by credit raters
WASHINGTON (Reuters) - The Securities and Exchange Commission may propose requiring credit rating agencies to differentiate between corporate bonds and structured finance products as well as make disclosures around past ratings, the agency's chairman said on Friday.
Chairman Christopher Cox's comments came as credit rating agencies like Moody's Corp (MCO.N), Fitch and Standard & Poor's have been accused of rubber-stamping structured finance products like mortgage-backed securities with high ratings.
Critics have blamed credit raters for failing to highlight risks secured by pools of mortgages, conducting weak analyses and granting higher ratings because they are paid by the companies or issuers whose securities they rate.
Cox told delegates at a securities law conference that rules may be proposed to enhance investor understanding of important differences between ratings for municipal and corporate debt and for structured debt instruments.
He said requiring credit rating agencies to make disclosures on past ratings would promote competitive assessments of the accuracy of past ratings.
"Healthy competition would use the available information to highlight and reward successful past performance and to punish chronically poor and unreliable ratings," he told reporters on the sidelines of the conference.
The SEC has been investigating whether issuers and underwriters of subprime mortgages unduly influenced credit-rating services.
The agency is charged with ensuring credit raters follow their stated procedures for managing conflicts of interest, as well as ensuring they make adequate disclosures.
Michael Macchiaroli, associate director of the SEC's division of trading and markets, said results from an agency review will be used to look at rules to determine whether the commission needs additional legislation.
The agency may have to do "even more than what the chairman stated," Macchiaroli said at the same conference.
Standard & Poor's is a unit of McGraw-Hill Cos Inc (MHP.N) Inc and Fitch is a unit of France's Fimalac SA (LBCP.PA).
(Reporting by Rachelle Younglai; Editing by Tim Dobbyn)
