Investigators step up pressure on rating agencies

The chairman of the Securities and Exchange Commission (SEC), Christopher Cox, said in a speech in Washington, DC on Friday that "the rules governing US-based rating agencies such as Moody's, Standard & Poor's, and Fitch, affected risk management by banks and institutional investors half a world away".

In 2006, the SEC gained the power to regulate rating agencies more closely under the Credit Rating Agency Reform Act. Cox said that 2008 would see the SEC "lead the way with proposals for new, more detailed rules ... that respond directly to the shortcomings we have seen through the subprime experience".

In particular, he said, agencies could be compelled to disclose past ratings decisions to allow investors to compare their track records. The SEC could also introduce rules to separate ratings of municipal and corporate debt from the less-reliable ratings given to structured products.

He singled out the AAA ratings given to monoline insurers, and the lack of transparency at the insurers, for particular criticism. "We have had ample illustration already of what happens when investors fail to look past an AAA rating to do independent analysis themselves," he said.

Meanwhile, in New York, attorney-general Andrew Cuomo dismissed the changes announced last week by the agencies as "too little, too late".

"Both S&P and Moody's are attempting to make piecemeal changes that seem more like public relations window-dressing than systemic reform. My office will continue its active investigation of the mortgage industry and the role played by the ratings agencies in the mortgage meltdown," Cuomo said on Friday.

See also: Surprise over "severe" Fitch CDO cuts
S&P promises reforms as regulators ponder ratings oversight

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• Topics
• Regulation
• Foreign exchange
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• Structured products
• Credit derivatives
• Credit risk