[DEBATE] : S&P unveils ratings overhaul

[Riaz K Tayob]

S&P unveils ratings overhaul By Gilian Tett and Jennifer Hughes in 
London and Aline Van Duyn in New York Published: February 7 2008 00:01 | 
Last updated: February 7 2008 00:01

Standard & Poor?s will on Thursday unveil a wave of business reforms in 
an effort to quell mounting regulatory pressure and investor anger about 
the failure of credit ratings agencies to foresee subprime housing losses.

The agency will pledge to overhaul the way it measures the riskiness of 
securities, step up investor education and reduce potential conflicts of 
interest by taking steps such as rotating analysts aroundbeats.

The move comes as the other two leading rating agencies ? Moody?s and 
Fitch ? overhaul their procedures in the wake of the credit turmoil, 
which has forced the three agencies to downgrade tens of thousands of 
securities in recent weeks.

These downgrades have come as a shock for investors, since many involve 
securities that previously carried the top-notch, ultra-safe ?triple A? 
tag. This, in turn, is now fuelling political pressure for American and 
European regulators to tighten oversight of the agencies, which are only 
subject to light regulation.

?Rating agencies are like the gatekeepers of the capital markets . . . 
so it is very important that we do a thorough examination now, and see 
if there is an appropriate regulatory response [to these issues] ? I 
suspect there may be,? Mary Schapiro, head of the Financial Industry 
Regulatory Authority in New York told the Financial Times on Wednesday.

The International Organisation of Securities Commissioners, a group of 
global regulators, is debating whether more regulation is needed. On 
Wednesday it issued a preliminary paper calling on the ratings agencies 
to improve their procedures.

However, it refrained from demanding formal controls amid signs that 
regulators remain divided over this issue. ?There?s still hesitation 
within some regulators to [introduce] formal regulation,? said Michel 
Prada, France?s top regulator who co-chairs the IOSCO committee.

However, Charlie McCreevy, European Union financial services 
commissioner, on Wednesday warned that he would push for regulation of 
the industry within a matter of months if they did not overhaul their 
operations in a radical manner. ?There is more to be done,? he said.

Deven Sharma, S&P president, refused to comment on whether the industry 
would be able to avoid more regulation. However, he insisted that S&P 
was determined to raise investor confidence by reforming its practices.

Copyright The Financial Times Limited 2008