Obama Sends Rating Agency Reform To Capitol Hill

Obama Sends Rating Agency Reform To Capitol Hill - 7/21/2009

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Obama Sends Rating Agency Reform To Capitol Hill
Jacqueline Bell

Securities Law 360. July 21, 2009
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EXCERPT: The Obama administration unveiled a key piece of its financial regulatory reform package Tuesday aimed at increasing transparency and tightening oversight of credit rating agencies. The U.S. Department of the Treasury delivered proposed legislation to Congress that the department said would help reduce conflicts of interest at credit rating agencies and give the U.S. Securities and Exchange Commission greater authority to supervise their activities. “In recent years, investors were overly reliant on credit rating agencies that often failed to accurately describe the risk of rate products,” the Treasury Department said. “This lack of transparency prevented investors from understanding the full nature of the risks they were taken.” “The Administration’s legislation would tighten oversight of credit rating agencies, protect investors from inappropriate rating agency practices, and bring increased transparency to the credit rating process,” the department said. Credit rating agencies have come under fire in the wake of the financial crisis from critics who say the agencies fanned the flames by failing to warn investors about risky mortgage-backed securities and tagging some with improperly high ratings. Under the administration’s proposal, credit rating agencies would be barred from providing consulting services to companies that also contract with them to rate their products. The legislation would also require credit rating agencies to disclose and manage any conflicts that stem from the way an agency is paid. Credit rating agencies are largely paid by the issuers who are seeking a rating for their products. Rating agencies would also have to reveal the fees an issuer paid for the rating along with the rating report, as well as the total amount of fees the issuer has paid to the rating agency over the past two years.

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