“The SEC is already far along in preparing for a second round of rulemaking”, Chairman Christopher Cox said before the U.S. Senate Committee on Banking. The Commission is expected to issue rule proposals for public comment on subjects like accountability, transparency, and competition in the credit rating industry in the near future.
The focus of the Commission's ongoing examinations is whether the credit rating agencies diverged from their stated methodologies and procedures for determining credit ratings in order to publish higher ratings, and whether they followed their stated procedures for managing conflicts of interest inherent in the business of determining credit ratings, Cox said.
The new rules on accountability may include requirements for enhanced disclosures about ratings performance. These include “specific prohibitions on certain practices, as well as the establishment of requirements designed to address potential conflicts that could impair the process for rating structured products”, Cox said. The Commission also considers CRAs providing annual reports to the SEC.
To enhance transparency, the new rules require the disclosure of information about the assets underlying the mortgage-backed securities, CDOs, and other types of structured finance products they rate. Enhanced disclosure requirements on the rating procedure and a possibility to distinguish among ratings for different types of securities are also foreseen.
Rules on competition may include provisions designed to ensure that enhanced disclosure about a firm's ratings performance and access to the information underlying credit ratings stimulates competition. The SEC will also reconsider its extensive reliance on credit ratings in its own rules.
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