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SEC strengthens credit rating agency rules
WASHINGTON (Reuters) - Securities regulators adopted tougher rules for credit rating agencies, designed to enhance disclosures and rein in business practices that some say contributed to the global financial crisis.
The Securities and Exchange Commission voted unanimously on Wednesday to adopt new rules that crack down on conflicts of interest at the firms, which are mostly paid by banks or issuers whose products they rate.
The industry is dominated by Moody's Corp (MCO.N), Standard & Poor's (MHP.N) and Fimalac SA's (LBCP.PA) Fitch Ratings. Critics say agencies helped cause the credit crisis by giving top ratings to mortgage-backed securities that later deteriorated.
New rules include one that 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.
Rating agencies will be required to comply with most of the new rules 60 days after they are published in the Federal Register, a government publication for rules and proposals.
The SEC proposed requiring that agencies disclose histories for all current credit ratings. If that is adopted, it would apply only to ratings paid for by issuers such as banks.
The SEC also revived a proposal that would prohibit an agency from issuing a rating for a structured finance product unless the information in the rating is available to other rating firms.
The SEC did not consider a set of proposals heavily criticized by Wall Street and other industry groups. One would have required firms to distinguish risky structured finance products from corporate bonds. Another would have removed references to credit ratings in most of the SEC's rules.
Wall Street and the real estate finance industry said creating a separate ratings scale for complex products like those linked to mortgages would scare away investors and further cripple credit markets. Mutual funds opposed the other proposal as it would scrap requirements that money market funds hold investment-grade securities.
(Reporting by Rachelle Younglai; Editing by Lisa Von Ahn and John Wallace)
