SEC May Prohibit Moody's, S&P From Advising Investment Banks

New York, NY (AHN) - The U.S. Securities and Exchange Commission may propose to ban three ratings agencies from advising investment firms on how to earn top rankings for asset-backed securities.

The reports said that SEC this week may prohibit Moody's Investors Service, Standard & Poor's and Fitch Ratings as the commission tries to zero in on conflicts of interest, including the way companies receive the payments, Bloomberg reported quoting some sources inside SEC.

SEC is also likely to recommend that the three firms must be forced to disclose all the data used for a rating so competitors can grade bonds even if they weren't compensated by the underwriter.

The commission, which has been investigating the credit-rating industry since last summer after the U.S. subprime contagion, will address concerns regarding the accuracy of the ratings on structured finance products.

The ratings agencies have downgraded or reviewed over 20,000 mortgage bonds so far this year,

Overall the subprime mortgage crisis has forced the major banks and brokerages in the U.S. to post more than $389 billion in losses and writedowns, since last summer.

So far the financial services companies have managed to raise as much as $283 billion to cover the losses, according to the reports.

The news service quoted anonymous sources close to the matter as saying the SEC may propose the new recommendations at a June 11 meeting in Washington.