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Financial Professionals Press SEC to Take Action on
Broken Credit Rating System
BETHESDA, MD -- JULY 28, 2003 -- In response to the U.S. Securities
and Exchange Commission's (SEC) concept release: Rating Agencies and
the Use of Credit Ratings Under the Federal Securities Laws, the Association
for Financial Professionals (AFP) says it is time for the Commission to
take assertive action in its oversight of credit rating agencies.
"It's time for the SEC to take action," said AFP's President and CEO
Jim Kaitz. "Almost a year ago, AFP members, both issuers and investors,
signaled that the credit rating system is broken. They specifically indicated
the need for improvement in the accuracy and timeliness of credit ratings."
AFP's comment letter
to the SEC makes the following points:
- Rating agencies are critical to the efficient operation of the capital
markets and the SEC must provide prudent oversight that restores and
ensures investor confidence.
- AFP supports keeping the nationally recognized statistical rating
organization (NRSRO) designation that recognizes agencies that provide
credible and reliable ratings, and believes the SEC is the appropriate
agency to grant that recognition.
- The current criteria for granting the NRSRO designation are not appropriate
and have created an oligopoly among recognized rating agencies. The
most important criteria should be based on whether an agency can consistently
produce credible and reliable ratings, not simply on whether the market
recognizes the rating agency's ability to do so.
- The SEC should undertake a periodic review of all NRSROs to ensure
their ratings remain credible and reliable.
- By removing artificial barriers to market entry, the SEC will foster
additional competition in the market for credit ratings, which will
result in more accurate and timely ratings.
In a November 2002 AFP survey, financial professionals said credit ratings
are often inaccurate and slow to reflect changes in company finances.
In response to its survey, AFP has strongly urged the SEC to focus on
its oversight of credit rating agencies and foster greater competition
among them, which will help restore public and investor confidence in
the capital markets.
Highlights of AFP's 2002 Rating Agencies Survey found that many AFP
members believe that:
- The information provided by credit rating agencies is neither timely
nor accurate
- The rating agencies are primarily serving the interest of parties
other than investors
- The SEC should increase its oversight of rating agencies and take
steps to foster greater competition in the market for credit rating
information
The Association for Financial Professionals in Bethesda, Maryland, supports
more than 14,000 individual members from a wide range of industries throughout
all stages of their careers in various aspects of treasury and financial
management. AFP is the preferred resource for financial professionals
for continuing education, financial tools and publications, career development,
certifications, research, representation to legislators and regulators,
and the development of industry standards.
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