Aug. 27 (Bloomberg) — Credit-rating firms, whose lapses played a central role in the 2008 financial crisis, will face new restrictions on conflicts of interest under rules adopted by the U.S. Securities and Exchange Commission.
The rules, approved on a 3-2 vote today, require firms including Moody's Investors Service and McGraw Hill Financial Inc.'s Standard & Poor's to ensure they follow internal methods when grading debt and revising ratings. They will also have to boost disclosure on their accuracy, including a common way of presenting default and downgrade rates for bonds backed by loans for homes and commercial buildings.
Seeking to prevent graders from pandering to the bond issuers, who pay for the ratings, the rules include a strict prohibition on allowing sales motives to influence them. Firms also would have to re-examine the ratings of analysts who leave to join companies whose products they rated.
"This package of reforms will improve the overall quality of credit ratings and protect against the re-emergence of practices that contributed to the recent financial crisis," SEC Chair Mary Jo White said in a statement before today's vote.
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