SEC says rating agencies failed to manage conflicts of interest

Reports suggest the SEC will condemn rating agencies for cutting corners to rate profitable subprime-infested structured products

NEW YORK – Credit rating agencies rushed through ratings for in-demand complex structured products, while failing to effectively divide their analysis from the business side, according to Christopher Cox, chairman of US regulator the Securities and Exchange Commission (SEC).

Speaking in a television interview on Bloomberg Television on Monday, Cox revealed the direction of the findings from the SEC probe on rating agency conduct that will be released next week. Government investigators have spent months sifting through millions of pages of internal records and e-mails related to the ratings of subprime mortgage-related securities.

“The public will see that there have been significant problems. There have been instances in which there were people both pitching the business, debating the fees and were involved in the analytical side,” said Cox.

Cox said ratings analysts were deluged with requests that were highly profitable to the agencies and their clients, and “the volume of work taxed the staff in ways that caused them to cut corners, that caused them to deviate from their models”.

The comments follow SEC proposals last month for new rules for rating agencies, and come only days after European commissioner for the internal market Charlie McCreevy commented they would face regulation in the European Union.