Association for Financial Professionals Applauds Securities and Exchange Commission Report on Credit Rating Agencies

SEC's Actions Reflect Concerns Raised in a Recent Survey of Financial Professionals

JANUARY 28, 2003 -- BETHESDA, MD -- The Association for Financial Professionals (AFP) supports the decision by the Securities and Exchange Commission (SEC) to further examine its oversight of rating agencies, a move that AFP recommended to the SEC in November. The SEC's action was disclosed in a report that was delivered to Congress on Friday, January 24.

"We are pleased that the SEC has responded to the concerns and recommendations of our members and will be considering steps to increase its oversight of rating agencies and stimulate competition in the market for accurate and timely credit rating information," said Jim Kaitz, president and CEO of AFP.

The SEC's actions are consistent with the results of AFP's Rating Agencies Survey. According to the November 2002 survey:

• Twenty-nine percent of practitioners who work for companies with rated debt believe that their company's ratings are inaccurate.
• Only 65 percent of the respondents who use credit ratings for investment decisions believe the ratings are accurate.
• Most respondents do not believe changes in their company's finances are promptly reflected in the ratings, reporting that it typically takes up to six months for a ratings downgrade and longer for an upgrade.
• More than a quarter of practitioners working for companies that have experienced a downgrade report that it took more than six months for the adverse changes to be reflected in their ratings.

Kaitz shared the results of the AFP survey during a November 21 SEC hearing. Other findings state that nearly two-thirds of corporate financial professionals believe the SEC should clarify the procedures it uses for recognizing rating agencies, while almost three-quarters believe the SEC should periodically review the rating agencies it recognizes. Also, most respondents indicate that recognition of additional agencies would improve the quality of ratings and its timeliness.  Forty-eight percent of corporate practitioners believe that additional choices for rating agencies would increase accuracy when assessing corporate credit risk. 

"We look forward to working with the SEC to develop rules that will improve the quality of the information credit rating agencies provide for the benefit of issuers and investors in the United States securities markets," said Kaitz. 

The SEC report, which examines the role and function of credit rating agencies in the operation of the securities market, was required by the Sarbanes-Oxley Act of 2002. The report states that the SEC will further examine issues identified during its preparation of the report, including potential barriers to entry to the market for credit ratings and the SEC's ongoing oversight of rating agencies. The report further stated that the SEC will propose rules within 60 days and solicit public comment.

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.