Rating agencies under the auspices of the SEC

With the "Credit Rating Agency Reform 2006" the United States Senate has approved a law which will put the rating agencies under the authority of the U.S. Securities and Exchange Commission (SEC). The law will also provide a registration procedure for new competitors. The SEC will also be entitled to intervene in case of conflict of interest or uncompetitive practices. Under the new law a rating agency could loose its status as officially approved credit rating agency if its ratings of the creditworthiness of issuers would not meet defined quality standards.

The new law still needs to submitted to the House of Representatives for approval or amendment. To date five rating agencies are approved by the SEC, the biggest of which, namely S&P and Moody's, currently hold a market share of around 80 percent. The role of rating agencies came under critisim during the last years, especially in the case of Enron, where the agencies were blamed for not forecasting the financial difficulties of the former energy giant.

Source: Neue Z├╝rcher Zeitung



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