SEC Approves New Rules For Credit Rating Agency Oversight

December 3, 2008 8:19 p.m. EST

Washington, DC (AHN) - The Securities and Exchange Commission on Wednesday approved new rules to increase transparency and prevent conflicts of interest at credit rating agencies.

The move comes after the SEC performed a 10-month study of three major credit rating agencies and found several weaknesses in their ratings practices.

SEC members voted unanimously to approve the new rules, which will take effect in about 60 days.

"These comprehensive rules touch every aspect of the credit rating process - from conflicts of interest, to publication of ratings methodologies, to disclosure of ratings track records," said SEC Chairman Christopher Cox in a statement.

The new rules will give the investing public access to a plethora of new information and promote needed competition in the industry, according to Cox.

Among several of the rule changes, agencies will be banned from creating ratings on firms they made recommendations to concerning corporate structure or assets when the firm was issuing securities. The rule includes recommendations made to the underwriter of the security as well.

Also, ratings agencies will not be allowed to advise banks on how to package securities in order to secure the best potential rating. Additionally, gifts from clients over $25 will be prohibited.

The credit rating industry was self-regulated up until 2007 when the Credit Rating Agency Reform Act went into law, giving the SEC oversight of the industry.

The SEC did not state which credit agency were used for its study, but Moody's, Fitch Ratings and Standard & Poor's are the industry's three largest players.