An investigation of credit ratings agencies by the U.S. Securities and Exchange Commission (SEC) has found “significant weaknesses in ratings practices.”
The report, released today, says that significant aspects of the ratings process were not always disclosed, the rating agencies did not always document significant steps in the ratings process — including the rationale for deviations from their models and for rating committee actions and decisions, and they did not always document significant participants in the ratings process.
“We’ve uncovered serious shortcomings at these firms, including a lack of disclosure to investors and the public, a lack of policies and procedures to manage the rating process, and insufficient attention to conflicts of interest,” says SEC Chairman Christopher Cox. “When the firms didn’t have enough staff to do the job right, they often cut corners. That’s the bad news. There’s also good news. And that’s that the problems are being fixed in real time. The recent events affecting our economy and our markets have galvanized regulators around the world to re-examine the regulatory framework governing credit rating agencies, but ultimately the responsibility for providing meaningful ratings to investors begins with the credit rating firms themselves.”
A pdf of the full report is available on the SEC’s website.