The Securities Industry and Financial Markets Association cautions against removing references to credit ratings in securities rules, instead calling for improvements to the ratings process.
In a comment letter filed today with the Securities and Exchange Commission, SIFMA cautions against proposals to remove references to credit ratings in regulations, which the SEC issued with the intention of avoiding over-reliance on credit ratings and promoting independent analysis.
SIFMA’s Credit Rating Agency Task Force said it does not believe the possibility of undue reliance on credit ratings justifies the deletion of references to and use of credit ratings in regulations. Additionally, it finds that the use of credit ratings in regulations in many cases provides an appropriate independent minimum threshold, and is an important data point that should be retained as part of an investor’s overall credit analysis.
It argues that removing these references may increase apprehension among market participants faced with the challenge of complying with new, vague standards; increase uncertainty among investors who rely on the protection and transparency the ratings provide; and increase confusion among market participants subject to competing regulatory frameworks.
The letter also notes that determining the appropriate degree of reliance on credit ratings is less of a regulatory issue and more of a best practices one.
Finally, the Task Force stresses that credit ratings and the ratings process itself will be more transparent once the SEC implements its recent credit rating agency reform proposals and recommends that the SEC focus its efforts on ensuring that those proposed amendments achieve their stated objective.
“While we support the promotion of due diligence and independent investment analysis by market participants, we believe removing references to credit ratings from securities regulations will not achieve that objective,” said Deborah Cunningham, chief investment officer at Federated Investors and co-chair of SIFMA’s Credit Rating Agency Task Force. “Credit ratings provide an important data point that is a useful component in an investor’s risk analysis process and offer an objective minimum threshold in bright-line, rating-based compliance standards. Rather than undertake a sweeping regulatory reform which may potentially destabilize the market and harm investors, the Task Force encourages the SEC to instead continue to pursue its efforts to improve investor confidence in ratings.”
SIFMA supports retaining references to credit ratings in regulations
Recommends SEC focus on improving ratings process
- By: James Langton
- September 4, 2008 September 4, 2008
- 15:20