Speech by SEC Chairman:
Statement at SEC Roundtable on Credit Rating Agencies
Chairman Mary L. Schapiro
U.S. Securities and Exchange Commission
April 15, 2009
Welcome to the Securities and Exchange Commission's Roundtable to examine the oversight of credit rating agencies. The Commission is truly grateful that so many have agreed to participate in today's meeting. We look forward to your comments, insights and recommendations.
As you all know, the SEC is the investor's advocate, and since I arrived here 10 weeks ago, I have focused singularly on how the SEC can best serve the needs of investors. And clearly, the role of credit rating agencies must be an area for our intense review as we think about how to promote investor protection and market integrity, and restore confidence in our financial system.
In late 2006, the Credit Rating Agency Reform Act gave the Commission the exclusive authority over rating agency registration and qualifications. In the less than three years since, the Commission has undertaken no fewer than five rulemakings. Clearly, the Commission has been very active in its efforts to fully implement the authority granted by Congress — all with an eye to providing the investing public with more confidence in the rating system.
These rules, which are all still relatively new, relate to a myriad of topics — ranging from registration and recordkeeping to disclosure and managing conflicts of interest. The last of these rules, some of which were adopted this past December and some which are still pending, were significantly influenced by the findings of the SEC's extensive 10-month examination of three major credit rating agencies.
But as much as we have done, there is still more to do. The status quo isn't good enough. Rating agency performance in the area of mortgage-backed securities backed by residential subprime loans, and the collateralized debt obligations linked to such securities has shaken investor confidence to its core.
Our purpose today is to ask some very basic questions:
Should the Commission consider additional rules to better align the raters' interests with those who rely on the ratings — that is, principally, investors?
Stated another way, does one form of rating agency business model represent a better way of managing conflicts of interest than another? Is there a way to realign incentives so that rating agencies view investors as the ultimate customer?
Do users of ratings — whether they are issuers or investors — have all of the information they need to make the most informed decisions? For example, is there more information about performance, expertise with regard to certain types of securities products, or fees that would be meaningful in restoring investor confidence or would provide investors with the tools to discern the value of the rating? Should we borrow a page from the research analyst conflicts of interest settlement of several years ago and require a mechanism that provides for the issuance of multiple ratings for every security, including one generated independently?
Are there additional behaviors — for example, concerning the way that agencies bid for work — that should be examined and modified? Would increased competition in the rating agency space benefit investors and how would we achieve that?
Are some securities products so inherently complicated or risky that ratings are, at best, meaningless or, even worse, misleading? In other words, is everything really ratable?
Should investors re-examine the way that they look at ratings to ensure that ratings represent the beginning of due diligence and not the end? Should the government end its reliance on ratings or limit that reliance?
We are very fortunate to have with us today a number of panelists who will help us find answers to these and other questions. The first panel will help us understand what the rating agencies themselves are doing to address the problems. The second panel will discuss competition issues, both domestically and from a global perspective. The third panel will provide the views of different types of users. And the fourth panel will primarily focus on identifying possible new approaches to oversight.
I'll now turn the meeting over to Dan Gallagher, Deputy Director of the Division of Trading and Markets, who will introduce and moderate our first panel.