SEC criticizes credit-rating firms

Credit-rating companies in the United States are beset by shortcomings, failing to act quickly enough to issue downgrades and not properly documenting ratings decisions, the Securities and Exchange Commission said in a report.

The SEC said Thursday that the country’s largest credit-rating firms - Standard & Poor’s Corp., Moody’s Investors Service and Fitch Ratings - did not follow their own policies in issuing ratings and failed to accurately document their decisions.

This was the second report the SEC has issued about ratings firms, a responsibility the agency inherited under the Dodd-Frank financial reform act. The report evaluated the performance of rating companies from August 2010 throughSeptember 2011.

Credit-rating firms evaluate companies and government agencies seeking to issue debt through bonds or other securities. The ratings they receiveaffect the interest rate on the debt.

Eight of nine firms made changes that the SEC had recommended in a 2011 report, the agency said in its latest report. One of the “smaller” firms “failed to appropriately address the vast majority of recommendations from the 2011 examination,” the SEC said in the report. The report did not name any firm, instead identifying them as the “three largest” or “smaller” ratings companies.

Thomas J. Butler, director of the SEC’s credit ratings office, which was created under Dodd-Frank, said, “The firms have been generally responsive to the staff’s recommendations, which are intended to strengthen ... policies, procedures and operations and to make theirinternal governance and controls more robust.”

The three large credit-rating firms said they were satisfied with the SEC’s report and were working to make improvements that the agency suggested.

Business, Pages 66 on 11/18/2012

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