S&P creates ombudsman role

In an effort to "strengthen its ratings process, increase transparency and better serve capital markets", rating agency Standard & Poor's has appointed Ray Groves to the newly created position of ombudsman, effective February 16.

Groves, a former chairman and chief executive at Ernst & Young (E&Y), will be expected to address issues and concerns about agency practices raised externally and internally, while making sure S&P has the necessary channels to deal with problems.

He will report directly to Harold McGraw, chief executive of The McGraw-Hill Companies, S&P's parent, and be accountable to the audit committee of the board of directors.

"Both the markets and our own employees expect the highest standards of independence, quality and transparency; the office of the ombudsman will provide another way for S&P to meet these expectations," remarked McGraw.

Groves worked for 37 years at E&Y, serving as chief executive for 17 years until retiring in 1994. Subsequently, he was chairman of Legg Mason Merchant Banking from 1995-2001, and chairman of insurance broker and risk advisory Marsh from then until 2005. He sits on the board of Boston Scientific, Group Ark Insurance and the Colorado Physicians' Insurance Company.

The move to hire Groves comes in the wake of intense regulatory scrutiny over the role of rating agencies in the financial crisis. Agencies came under heavy fire for assigning AAA ratings to subprime mortgage-backed securities and collateralised debt obligations with subprime exposure - products that subsequently experienced mass downgrades and resulted in huge losses.

On December 3, the US Securities and Exchange Commission voted in favour of new rules designed to reduce conflicts of interest in the ratings process. The rules included a condition that agencies will no longer be allowed to rate securities if they advised on the structuring, while no staff involved in developing rating methodologies will be allowed to participate in fee negotiations.

Meanwhile, the European Commission on November 12 outlined its own formal proposal to regulate rating agencies, which is now going through the legislative process. If passed, agencies will no longer be allowed to provide advisory services or rate products if they do not have sufficient quality information.

See also: EC outlines proposal to regulate rating agencies
SEC votes to tighten rules on rating agencies