New transparency rules for credit rating agencies

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WASHINGTON – The US Securities and Exchange Commission (SEC) is to introduce new rules aimed at increasing the accountability of credit rating agencies (CRAs). The new rules would involve banning ratings agencies from consulting with investment banks whose products they rate. SEC chairman Christopher Cox told the Senate Banking Committee that as part of its investigation into how securities such as collateralised debt obligations (CDOs) – which CRAs were blamed for exacerbating the subprime crisis by giving low-risk ratings to high risk and ultimately illiquid products – were rated, his staff had seen "that the ratings process used to rate these products may have been less quantitatively developed than was generally believed".

The rules are aimed at increasing the accountability of ratings agencies by requiring the CRAs to release the information used to rate subprime mortgage-backed securities to allow consumers to judge how the agencies operate and to compare the performance of the various agencies.

The new rules will be introduced “in the near future”, according to Cox.

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• Topics
• Risk management
• Credit derivatives