Credit rating agencies should improve their disclosures and standardize their rating methods for different types of securities, the Securities Industry and Financial Markets Association recommended today in a report.
The 37-member Credit Rating Agency Task Force issued the report to “rebuild investor confidence in the rating process,” Securities Industry and Financial Markets Association chief executive Tim Ryan said in a telephone press conference this morning.
SIFMA is headquartered in New York and Washington.
“That confidence is seriously at issue now,” Mr. Ryan said. Rebuilding that confidence “is essential to the global markets, he said.”
Credit rating agencies failed to foresee major problems with mortgage debt securities over the past year.
The report, which is to be distributed to regulators, lawmakers and credit rating agencies globally, made 12 recommendations to improve the credit rating process.
Among them: Agencies should disclose the due diligence they have conducted in examining the underlying assets, as well as provide access to data on their performance, the report suggested.
“Conflicts of interest should be addressed with a sensitivity towards the difference between CRA core services and CRA consulting services,” according to a statement by SIFMA.
Additionally, CRA fee structures and the identity of top payers should be disclosed to regulators.
A global SIFMA advisory board of industry participants should be established to advise regulators and lawmakers on ratings issues and lawmakers and regulators should coordinate globally as well.
Investors must also understand the limits of ratings, the report said.
Another SIFMA task force is to release a report at the end of August or early September on structured and securitized products.
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