WASHINGTON–The Senate Banking Committee passed legislation yesterday giving the Securities and Exchange Commission authority to regulate credit rating agencies and address concerns about conflicts of interest and abusive or anticompetitive industry practices.
The bill would give the agency specific regulatory authority over such firms as Standard & Poor's, Moody's Corp., Fitch Ratings and A.M. Best.
But the bill doesn't give the SEC the authority to determine criteria or methodologies used by the credit-raters to do their work.
The Credit Rating Agency Reform Act of 2006 passed the committee by voice vote.
It is somewhat different than H.R. 2990, a comparable piece of legislation passed by the House in July.
Sen. Richard Shelby, R-Ala., chairman of the committee, said he hopes the full Senate will vote on the measure this fall.
"By increasing competition, the bill will protect investors by improving ratings quality and providing greater transparency and accountability," Mr. Shelby said in a statement.
Sen. Paul Sarbanes, D-Md., noted broad support for the bill, including from mutual fund, bond market and labor groups.
The Senate bill specifies standards for firms seeking to be designated as "nationally recognized" rating agencies, including a three-year track record, and allows the SEC to deny the designation to firms without the resources to consistently produce high-quality assessments of debt issued by corporations and governments.
Mr. Shelby called the bill a targeted response to problems in the credit rating industry, including a lack of competition, transparency and accountability. Sen. Thomas Carper, D-Del., called it "a good, balanced bill."
The Senate measure is different from the House bill, which would make dramatic changes in SEC oversight of credit rating agencies.
Under the House bill the SEC would be given greater authority to regulate rating firms and streamline the process by which ratings firms are designated as "nationally recognized," opening the door to competitors without setting many of the requirements called for by the Senate bill.
Standard & Poor's, the largest rating agency, said it supported the Senate bill over the House bill.
"The current version takes a constructive approach to increasing competition and transparency in the credit ratings industry," said Marjory Appel, senior vice president, marketing and communications, at S&P.
"We are encouraged that further improvements and clarifications will be made in order to safeguard the independence of the credit rating process," she said.
Earlier, Fitch Ratings said it believed the legislation "represents a significant step forward to prudently enhance competition in the rating agency industry."
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