WASHINGTON (CN) – Credit-rating agencies must insulate their sales and marketing employees from those who determine or monitor the agency’s credit ratings under conflict-of-interest rules proposed by the Securities and Exchange Commission.
The Dodd-Frank Wall Street Reform and Consumer Protection Act ordered the SEC to issue rules limiting the influence of business concerns on credit rating agencies’ methods and ratings.
The SEC says it found that sales employees at the three largest credit-rating agencies later linked to the to subprime mortgage crisis had talked to employees responsible for developing ratings about the impact upon business of their credit-ratings methods.
Violations of the proposed rule could result in suspension or revocation of an agency’s registration to offer ratings services to issuers who are listed with securities exchanges such as the New York Stock Exchange.
The rule includes provisions for random “look-back” reviews, in which the SEC would analyze all of the employees involved in a particular credit rating decision.
If the SEC found a conflict of interest, the agency would be required to place the credit rating on a credit watch; promptly determine if the credit rating must be revised outside the influence of the conflict; and publish a revised credit rating if appropriate.
Before issuing a final rule, the SEC seeks for public comment on a number of issues, including whether there should be exemptions for small agencies, where the separation of the marketing and analytical divisions is not possible, and if former subscribers to an agency’s ratings reports should be notified if a previous rating is found to have been made under the influence of a conflict of interest.