[JURIST] The US Securities and Exchange Commission (SEC) [official website] approved rule amendments [SEC press release] Wednesday that provide greater oversight and regulation of credit rating agencies. The rule amendments, which were passed to strengthen the Credit Rating Agency Reform Act of 2006 [text, PDF], will effect ratings agencies including Standard and Poor's and Moody's [corporate websites], who provide graded analysis of the credit-worthiness of corporations and other entities. The rule amendments [SEC fact sheet] include additional disclosure requirements which must be provided by ratings agencies concerning their ratings analyses, more stringent record-keeping requirements, and heightened conflict of interest rules. In comments made after the SEC approved the new rules, SEC Chairman Christopher Cox [official profile] said [speech text]:
Earlier this year the SEC publicly released our findings from an extensive 10-month examination of the three major credit rating agencies that uncovered significant weaknesses in their ratings practices for mortgage-backed securities and that called into question the impartiality of their ratings. The SEC last summer proposed comprehensive reforms to regulate the conflicts of interests, disclosures, internal policies, and business practices of credit rating agencies. The proposed rules addressed conflicts of interest and required new disclosures designed to increase the transparency and accountability of credit rating agencies.The rule amendments come after the SEC released the results [report, PDF; SEC press release] in July of a 10-month probe into the failures of credit rating agencies to adequately protect shareholders during the global financial crisis [JURIST news report].
Today, after taking into account the many comments the agency has received, and revising the proposals to address practical concerns that were brought to our attention through this public notice and comment procedure, we are prepared to issue final rules. These new rules will promote the goals of the Credit Rating Agency Reform Act of 2006 of improving ratings quality for the protection of investors and in the public interest by fostering accountability, transparency, and competition in the credit rating agency industry.
The SEC has been actively investigating certain sectors of the US financial industry in the wake of the financial crisis and the $700 billion financial rescue bill [JURIST report] passed in September. In early October, the SEC began an agency review of financial accounting procedures [JURIST report], including "mark-to-market" [SEC backgrounder] rules. Later in October, SEC Chairman Cox testified before a Congressional committee [JURIST report], stating that the credit crisis demonstrates the need for greater regulation of credit default swaps and investment banking.