A trade group representing corporate finance professionals intends to petition the Securities and Exchange Commission to increase its regulation of the rating agencies. The Association for Financial Professionals wants the SEC to outline the criteria by which it awards nationally recognized statistical ratings agencies (NRSROs) their status, said Jeff Glenzer, director of treasury services for the AFP.
This transparency, Glenzer explained, would encourage other entrants into the market for credit ratings. "We want regulators to step in and create a process that allows the threat of competition, which would stimulate innovation and creativity," he stated. The trade group is also calling for an oversight program to ensure recognized agencies are still up to snuff.
Glenzer added the current process is inherently flawed. "The SEC looks at whether an agency is nationally recognized before it gains official recognition, which is obviously circular," he said. The AFP, along with the U.K. Association of Corporate Treasurers and the Association Française des Trésoriers d'Entreprise, plans to submit a joint comment letter on the subject to the International Organization of Securities Commissions by Nov. 8.
A full 34% of corporate finance professionals believe their company's ratings are inaccurate and only 42% believe changes in their ratings are made on a timely basis, according to a recent survey by the trade group. It also found a majority of corporate finance officials (59%) believe the SEC should encourage greater competition among credit rating agencies, as well as possibly give recognized status to other rating agencies.
Frances Laserson, spokeswoman for Moody's Corp., countered that, despite some dissent, the survey pointed out a majority of officials believe the rating agencies are accurate and timely. "Considering those professionals were asked to complete a survey, we think the results are positive," she stated.
Glenzer recognized the natural bias of the survey and the tension between the issuers and the agencies. But he emphasized the results are still noteworthy. "In a competitive market, what business could have one third of its customers unsatisfied with its services?" he asked.
The results of the 15-question survey are based on responses from roughly 225 senior corporate financial professionals.
