Wednesday, December 3, 2008

SEC Approves Measures to Strengthen Oversight of Credit Rating Agencies

The SEC today "approved a series of measures to increase transparency and accountability at credit rating agencies, and ensure that firms provide more meaningful ratings and greater disclosure to investors.

The new measures impose additional requirements on credit rating agencies, whose ratings of residential mortgage-backed securities backed by subprime mortgage loans and of collateralized debt obligations linked to subprime loans contributed to the recent turmoil in the credit markets. The SEC also proposed additional measures related to transparency and competition concerning credit rating agencies."

We think these reforms are important first steps, and are mindful of the fact that politics and regulation are the "art of the possible."

As we said in 2005, fradulent practices by credit rating agencies

"threaten the integrity of securities markets. Individuals and market institutions with the power to safeguard the system, including investment analysts and NRSRO’s, have been compromised. Few efficient, effective and just safeguards are in place. Statistical models created by the firm show the probability of system-wide market failure has increased markedly over the past eight years. Investors and the public are at risk."

See http://www.sec.gov/rules/proposed/s70405/wcunningham9442.pdf