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AFP Urges SEC to Take Action on Conflicts of Interest in Credit Rating Agencies
Washington, DC - September 27, 2007 – The Association for Financial Professionals (AFP) urges the Securities and Exchange Commission (SEC) to review its recently finalized rules regarding credit rating agencies.
“We are encouraged that the SEC is conducting an examination of the role that credit rating agencies played in the current subprime mortgage market turmoil and look forward to seeing their conclusions. Unfortunately, the current mortgage market problem highlights the conflict of interest issues that AFP’s members first identified in 2001,” said Jim Kaitz, AFP President and CEO.
“The final rules approved by the SEC in May made significant progress in addressing many of concerns regarding the credit rating agencies. However, additional steps can be taken. As such, I urge the SEC to finish the job by reviewing its rules and adopting the recommendations that AFP made in its March 2007 comment letter,” Kaitz continued.
In its March 12, 2007, comment letter to the SEC, AFP recommended that the Commission add the following to its prohibited conflicts list:
- NRSROs should be required to establish distinct and absolute separation between rating analysts and credit rating agency staff responsible for generating revenue from credit ratings, rating assessment services, corporate governance reviews, or other ancillary services offered by the credit rating agency.
- The Commission should bar analyst compensation from being linked in any way to revenue generated from credit ratings or any ancillary services. The potential for a credit rating agency or individual analyst to abuse the market power associated with NRSRO recognition to boost revenue or personal earnings is obvious.
“I applaud Chairman Kanjorski for his leadership on this issue and for holding today’s hearing. While the focus today is understandably on the subprime mortgage market, credit rating agencies play a critical role in many other segments of the global capital markets, which is why we worked so closely with Representative Kanjorski (D-PA) and Senator Shelby (R-AL) to enact the Credit Rating Agency Reform Act of 2006,” Kaitz said.
Last year, Congress approved the Credit Rating Agency Reform Act of 2006. The reform act gave the SEC additional authority to oversee recognized rating agencies. That authority allows the SEC to impose an element of accountability on rating agencies to produce credible and reliable ratings. The reform act also gave the SEC the authority to address the conflicts of interest issues that were highlighted in today’s hearing.
The Association for Financial Professionals (AFP) serves more than 16,000 individual members throughout all stages of their careers in treasury and financial management. Headquartered in Bethesda, MD, AFP provides professional certification, continuing education, research, development of industry standards, financial tools and publications, training and career development and representation to legislators and regulators. AFP’s global reach includes AFP of Canada, a Toronto-based membership organization and gtnews, a London-based, on-line resource for the treasury and finance community.
AFP is the daily resource for its members to seek answers, solutions, best practices and collaboration with peers. For more information about AFP, visit www.AFPonline.org
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