SEC report details faults at credit raters

In its report, the SEC says that it has not found any of the issues listed to be a “material regulatory deficiency,” but adds that it might do so at a later date. The agency says it will also describe the raters’ responses to its recommendations in future reports.

{mosads}Generally speaking, the report divided the raters into two groups, with the three largest (Standard & Poor’s, Moody’s and Fitch) separated from the other seven.

The SEC also does not specify which rater committed the problems detailed in its study, with government officials signaling Friday that they would follow up with each ratings agency individually.

And, despite all the catalogued issues, the SEC did find that S&P, Moody’s and Fitch have improved their work since the release of a 2008 report that expressed concerns about the number of resources the agencies were devoting to their ratings.

But the report also illustrated how one of the big three did not follow its own guidelines when handing out ratings to some asset-backed securities. That mistake, the report found, not only led to an inconsistent rating, but also raised questions about how quickly the rater discovered and moved to fix the error.

Elsewhere, the report found that one of the smaller agencies looks to have altered its ratings methodology – and then kept the change secret for months.

And in all, the report faulted seven of the agencies – including all three of the larger ones – for not having strong enough policies dealing with securities owned by employees. 

The report examines the period between Dec. 1, 2009 and Aug. 1, 2010, well before S&P’s unprecedented downgrade of the U.S. credit rating.