S&P promises reforms as regulators ponder ratings oversight

S&P follows the lead of rival rating agencies Moody's Investors Service and Fitch Ratings, both of which have recently announced planned changes to their rating methods. It will recruit an ombudsman and an external auditor to look for conflicts of interest, which can arise when the agency is asked to rate a product it helped design.

S&P said it will update its models to include risks such as liquidity risk, volatility, valuation and recovery risk. And in a change also suggested by Moody's, it will introduce new ratings indicators to denote whether the rated entity is a structured product or a bond.

But changes made by S&P and the other agencies could be overtaken by regulatory action. In a meeting in Amsterdam yesterday, the technical committee of the International Organisation of Securities Commissions suggested agencies could be forced to disclose "the assumptions underlying the individual ratings for structured finance transactions" and could be banned from rating products they help to design.

See also: Surprise over "severe" Fitch CDO cuts
Moody’s: transparency will drive CDO investor comeback
Agencies rethink market risk rating methods
DBRS retreats from Europe

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