Strike up another body blow against the big three credit ratings agencies. The SEC said the in-house procedures of one of the world’s top three ratings agencies has been leaking its decisions in advance of public dissemination, according to a report by the US Securities and Exchange Commission (SEC).
While no agencies were named in the report, at one of the larger agencies the SEC said “the procedures for disseminating a pending rating action appeared to allow for limited dissemination of a pending rating action in some instances prior to public dissemination.” While they didnt name the agency there has been much speculation that Standard & Poors was the prime target of the probe.
We find this very troubling for the municipal bond ratings industry and another reason for investors to use market implied ratings which are disseminated to all investors immediately.
The 23-page document is the latest report released by the SEC on the major ratings agencies — Fitch, Moody’s, and Standard & Poor’s — and seven others of lesser stature which are recognized in the United States.
Annual checks of the agencies were introduced under a financial reform law that came into effect in July last year. Up until then, the checks were carried out every two years. This latest report covers the 2009-2010 period. No agencies were named throughout the report.
The powerful “big three” raters have been accused of contributing to the global financial crisis by helping propel the sale of risky investments such as mortgage-backed securities just to net more business.
The agencies, suspected of multiple conflicts of interest, are the focus of several US probes. S&P’s decision in August 2011 to strip the United States of its sterling AAA credit rating was preceded by several media reports announcing the decision was imminent.
The SEC noted that each of the big three had “made changes to improve its operations since the 2007-08 examinations.”Commission staff made a series of recommendations to each agency for improvements, notably on how to handle conflicts of interest, the report said.