WASHINGTON — Federal regulators on Wednesday adopted rules designed to stem conflicts of interest and provide more transparency for Wall Street's credit-rating industry, widely faulted for its role in the subprime mortgage debacle and ensuing credit crisis.
The five-member Securities and Exchange Commission voted unanimously at a public meeting to adopt the rules, most of which take effect in about 60 days.
SEC Chairman Christopher Cox called adoption of the rules "a significant and substantive action" that would affect every aspect of the rating business and would give the investing public access to a trove of new information while promoting needed competition in the industry. After nearly a century of policing itself, the industry came under SEC oversight through a 2007 law.
The commission did not adopt a proposal floated last spring to require ratings of complex securities, such as those underpinned by mortgages, student loans or auto loans, to be distinguished by a special identifier from those for more traditional securities like corporate or municipal bonds. That proposal drew opposition from Wall Street.
European Union regulators, who last month put forward strict rules for the rating companies that would hold them liable for their opinions, also proposed a similar system of flagging complex securities. Cox said after the meeting that the proposal would be subject to further study by the SEC and public comment.
The three firms that dominate the $5-billion-a-year industry -- Standard & Poor's, Moody's Investors Service and Fitch Ratings -- have been widely criticized for failing to identify risks in subprime mortgage investments, whose collapse helped set off the global financial crisis.
The rating firms had to downgrade thousands of securities backed by mortgages as home-loan delinquencies have soared and the value of those investments plummeted. The downgrades have contributed to hundreds of billions of dollars in losses and write-downs at major banks and investment firms.
Some critics, including investor advocates, say the SEC rules don't go far enough. They want new requirements to govern how the rating companies are paid and to provide for the suspension of their licenses if they engage in unfair practices.
"Any steps they take to further reduce conflicts of interest are critical to reforming the industry," said Jeff Glenzer, managing director of the Assn. for Financial Professionals, a group representing finance executives at U.S. corporations that has been active on the issue.
