Risk & Compliance

SEC’s Casey Rips Rating Agency “Oligopoly”

The commissioner wants to remove regulatory language that she sees giving the big firms unmerited privileges.
David KatzFebruary 10, 2009

The Securities and Exchange Commission should strip language from its rules that have set up and preserved “a valuable franchise for the large rating agencies, while simultaneously inoculating them from market competition,” SEC Commissioner Kathleen Casey has asserted.

 

Declaring it to be an essential move to address problems at the big rating agencies that have emerged during the financial meltdown, Casey said Friday that “it is imperative that the Commission adopt its proposal to address the oligopoly in the rating industry and the over reliance on…ratings by removing the regulatory requirements embedded in numerous SEC rules.” 

 

Those rules, according to Casey, confer unmerited privileges to the ten firms dubbed Nationally Recognized Statistical Rating Organizations, according to Casey, whose remarks reiterated points she made in December, before Mary Schapiro replaced the previous SEC chair, Christopher Cox. Criticism has been particularly heavy regarding the high ratings the big agencies gave to securitizations that have turned sour.

 

The SEC rules have referred to NRSRO ratings since the 1970s, she noted then, and it won’t be easy to remove them. “To remove the NRSRO references from SEC rules will require a reassessment of our longstanding uses of NRSRO ratings,” she said Friday at a Practicing Law Institute Conference in Washington.  “But, in my view, doing so is absolutely essential to the Commission’s efforts to faithfully implement the clear congressional intent of enhancing transparency, accountability, and competition in this industry.”

Casey, in fact, said she strongly believes “any reforms would not be complete without doing so.”

The commissioner said she was pleased to see that the recent report on financial reform by the Group of Thirty, an international body of prominent finance officials and economists led by senior Obama economic adviser Paul Vocker recommends that “users of risk ratings, most importantly regulated users, should be encouraged to restore or acquire the capacity for independent evaluations of the risk of credit products in which they are investing.”