The Securities and Exchange Commission (SEC) chair Mary Schapiro is seeking authority to mandate enhanced measures to promote the transparency and integrity of the nation’s statistical ratings firms, including the limitation of ratings shopping, according to testimony delivered Tuesday to a House Financial Services subcommittee. Ratings agencies have faced criticism for over-rating mortgage-backed and other asset-backed securities created by their clients but that were comprised of assets that turned out to be toxic. Since the subprime mortgage fallout, critics have called for regulation of the firms. The proposed regulations aim to eliminate the credit-shopping issue by requiring firms that solicit reports from ratings firms like Moody’s Investor Services, Standard & Poor’s and Fitch Ratings to disclose the pre-ratings they use to determine which firm to hire to conduct the analysis. In addition, each ratings firm — called a nationally recognized statistical rating organization, or NRSRO — would be required to make additional public disclosures on its processes. The proposals come on the heels of already implemented actions the SEC took to regulate NRSROs and the allocation of more resources to NRSRO oversight. “The requirements are designed to increase the transparency of the NRSROs’ rating methodologies, strengthen the NRSROs’ disclosure of ratings performance, prohibit the NRSROs from engaging in certain practices that create conflicts of interest, and enhance the NRSROs’ recordkeeping and reporting obligations to assist the Commission in performing its regulatory and oversight functions,” Schapiro told the subcommittee. Schapiro, who began her tenure as SEC chair earlier this year, also advocated requiring hedge, private equity, and venture capital funds advisors to register with the SEC. However, Schapiro warned the subcommittee the approximately 2,000 additional advisors that would be required to register with the SEC would put an increased strain on a commission already stretched too thin. “Significant additional resources would be necessary for the Commission to take on additional responsibility in this area,” she said. Write to Austin Kilgore.
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