Investor Relations 101

[Tina]

Issue Date: IR Alert - July 16, 2009

Credit Agencies Under the SEC Spotlight: Commission Establishes Group to Oversee Moody's, S&P and Other Rating Firms
A special group of examiners has been asked to focus specifically on supervising credit rating agencies like Moody's and Standard & Poor's, the top U.S. securities regulator said this week. Securities and Exchange Commission chairman Mary Schapiro said she has allocated additional resources to establish this branch of examiners, who will conduct routine and special exams. Schapiro also outlined possible legislative changes to strengthen investor protections including expanding sanctions available to the SEC, Reuters reports.

Credit rating agencies including Standard & Poor's and Fitch Ratings have been under fire for assigning top ratings to securities that later deteriorated in value. The SEC has already taken steps to clamp down on business practices that could present a conflict of interest such as banning an employee from structuring the same product he or she helps rate. But Schapiro has said more has to be done, report Reuters writers Rachelle Younglai and Karey Wutkowski.

"I also have directed commission staff to explore possible new regulations in this area, including limiting the potential for rating shopping," Schapiro said in prepared remarks delivered to a House Financial Services subcommittee.

SEC staff are exploring requiring banks and other bond issuers to disclose all the ratings obtained from credit rating agencies before they selected the credit agency to publicly rate their product, Schapiro said.

Schapiro has been working members of Congress in a bid to preserve the SEC as the country's securities markets regulator and investor protector. Unlike other financial regulators, the SEC has not been stripped of its authorities under proposals from the Obama Administration.

Schapiro said SEC staff have identified legislative changes to help the agency better protect investors. Those changes include giving the audit watchdog the Public Company Accounting Oversight Board the authority to inspect auditors of broker-dealers.

Such legislation has already been introduced in the House of Representatives and was introduced to help prevent a repeat of what happened with Bernard Madoff's auditor, which was uninspected or registered by the PCAOB.

Under current law, auditors of broker dealers do not have to be registered with the PCAOB.

The SEC would like other legislative changes including authorizing the release of certain grand jury information to the agency's, and establishing "aider and abettor" commission causes of action in areas of the securities law where it does not already exist.

Schapiro also said she has asked staff to prepare recommendations on mutual fund distribution fees known as 12b-1 fees, which allow funds to use fund assets for distribution and servicing costs.

The fees are not well understood by investors. "If issues relating to these fees undermine investor interests, then we at the SEC have an obligation to adjust our regulations," Schapiro said in her testimony.