The Securities and Exchange Commission should not step up its oversight of credit rating agencies, according to a letter filed last week by the Bond Market Association (BMA). The SEC should, however, institute rules that clearly specify how rating agencies can be officially recognized by the Commission, to promote competition and improve the quality of ratings, according to the BMA.
The trade group composed its letter in response to a "concept release" issued by the Commission, seeking comment on how it might better regulate the agencies. Both the agencies and the SEC were widely criticized for either failing to react quickly enough when recent corporate accounting scandals came to light, or failing to prevent them in the first place. "We're not trying to suggest the system is perfect, but we don't see a clear substitute for using ratings as a proxy for creditworthiness for a variety of different regulatory purposes," says John Ramsay senior v.p. and regulatory counsel at the BMA.
Ideas put forth in the release range from taking no action at all to requiring agencies to formally register themselves and be subject to regular audits and exams. Additionally, the Commission could require agencies to prescribe how ratings are assigned and what symbols should be used. No timetable has been set for further decision-making though Ramsay says, "I expect they'll continue to give this some focus and won't let it drag out interminably."