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SEC Report Points to Credit Raters' Conflicts of Interest

Reuters
Tuesday, 8 Jul 2008 | 1:58 PM ET

Credit rating agencies did not properly manage their conflicts of interests when assigning ratings to structured products such as mortgage-backed securities, a report by the U.S. Securities and Exchange Commission said on Tuesday.

Rating firms have policies and procedures designed to prevent them from being influenced to issue or maintain a top credit rating in order to win business for the firm.

However, the SEC found a number of instances where key credit agency analysts took part in fee discussions.

One rating agency allowed senior analytical managers to participate directly in fee discussions with issuers until early 2007 when it changed its policy, the SEC report said.

Another rating agency allowed its analytical managers to participate in internal discussions about what was appropriate for determining a fee for a certain product.

"Analysts appeared to be aware, when rating an issuer, of the rating agency's business interest in securing the rating of the deal," the report said without identifying the individuals or firms involved.