According to sources contacted by Bloomberg, the Securities and Exchange Commission (SEC) might recommend that the firms be barred from advising banks on how to attain AAA ratings on asset-backed securities, reports Bloomberg.
At a meeting in Washington this Wednesday, the watchdog also seems likely to propose that the companies also be legally obliged to make public all the criteria that go into each individual rating – making the process more transparent than before.
Pressure for reform in the sector follows the firms’ apparent over-valuation of many AAA-rated securities prior to last summer’s sub-prime meltdown: the companies are therefore held partly to blame for the $389 billion of asset write-downs which have been sustained by banks in the ensuing credit crunch.
“They basically sold ratings to the highest bidder without any regard to the performance of the rated securities. The agencies did not know how to rate these instruments,” says Joshua Mason, an expert on the asset-backed securities.