SEC finds problems in review of credit-raters


Published — Saturday 17 November 2012

Last update 16 November 2012 7:52 pm

| نسخة PDF Print News | A A

WASHINGTON: Some credit-rating agencies failed to disclose ratings method changes or were lax in following policies on timely downgrades of securities, according to a report issued by US securities regulators yesterday.
The Securities and Exchange Commission summarized the results of its annual examination of raters, a requirement under the 2010 Dodd-Frank Act which called for greater scrutiny of ratings agencies following the 2007-2009 financial crisis.
The largest ratings firms, Moody's Corp. and McGraw-Hill Cos Inc.'s Standard & Poor's, have been criticized for helping to exacerbate the crisis by giving rosy ratings to subprime mortgage securities that quickly turned toxic.
Yesterday’s SEC report does not name which firms had violations, but does distinguish between larger versus smaller credit-raters.
The SEC's exams were conducted on site at all nine raters registered with the SEC, which include smaller firms like Egan-Jones, as well as the big three - Moody's, Standard & Poor's and Fimalac SA's Fitch.
The SEC found that each of the larger raters and two smaller firms failed to follow their own methodologies and policies for determining ratings.
In one case, the SEC said, one of the big three changed its method for calculating a key financial ratio for asset-backed securities ratings and failed "for several months" to publicly disclose the change and its impact.
This firm, the SEC said, "appeared to have weak internal supervisory controls and lacked transparency over the process of rating these asset-backed securities."
The SEC added that market share and business considerations may have played a role in how this rater applied its methodology - a potential conflict of interest that many critics see as a problem in the industry.
The big three use what is called an "issuer-paid" business model, in which companies seeking ratings pay for them.
The big raters say this conflict can be managed but critics argue this model should be scrapped.
The Dodd-Frank law requires the SEC to study possibly replacing the model with a new method in which a public or private utility would assign structured product ratings to firms at random. So far, its findings have not been released.
S&P said on Thursday it has "enhanced its ratings process, governance and compliance function, including proactively making a number of the changes that are now being recommended by the SEC."
Spokesmen for Moody's and Fitch were not immediately available for comment.

What's happening around Saudi Arabia

JEDDAH: A total of 172,000 pilgrims have arrived via 861 flights from around the world at King Abdulaziz International Airport so far, said Turki Al-Theeb, the airport’s director of media and public relations.He said the number of Haj flights are exp...
RIYADH: Saudis from all walks of life are hopeful that the visit of Custodian of the Two Holy Mosques King Salman to the United States this week will strengthen relations between the two countries and ensure a peaceful and stable Middle East.Shoura C...
JEDDAH: Security forces killed a terrorist who tried to attack a security facility in Abqaiq on Friday, the Interior Ministry said.Sgt. Ali Al-Habeeb, 47, was killed during the confrontation with the attacker, identified as Nawaf Manahi Shabib Al-Ota...
ANKARA: Labor Minister Mufrej Al-Haqabani has said that unemployment among Saudis is relatively high, pointing to the negative impact of retreating oil prices on the economy and labor market. He confirmed that the Kingdom was continuing with the impl...
JEDDAH: The country’s newly elected municipal councils should have a say in selecting mayors and secretaries general of cities, participants at a Municipal Councils Forum suggested on Thursday.They proposed that the councils should compile a list of...
DAMMAM: Many Saudis have complained that while the Kingdom has attractive local tourist spots, several charge high prices, offer poor services and lack proper hygiene.They said that Taif, Abha, Baha, Jeddah and the Eastern Province have popular resor...

Stay Connected