SEC Cites Conflicts of Interest Among the Employees of Rating Agencies

October 01 00:00 2011

New York, October 1 ( – The Securities and Exchange Commission (SEC) has cited what has by now become common knowledge in the financial community. According to SEC, the credit rating agencies such as Moody’s, Standard And Poor’s etc. do not have adequate measures to ensure that their employees do not face conflict of interest.

The SEC said that the analysts at these firms are not prohibited or restricted in any way from owning the financial instruments that they are rating. Thus an analyst could short sell some bonds today if it knows that tomorrow the credit ratings are going to be degraded. Also SEC stated that there are no proper disclosure norms in place. Even the ones that are in place are subject to gross violation.

What is startling is the fact that such revelations have been made by the SEC following similar statements by senior officials from credit rating agencies themselves who have now retired. A senior personnel from Moody’s was quoted saying that, at his appraisal he was told to think about the bottom line before giving ratings to any organization.

While some investors are perplexed as to why the SEC is stating mere obvious things and making them sound like break through discoveries. But a look at the SEC’s directors statement which says “This report demonstrates the SEC’s enhanced oversight of credit-rating agencies” makes the SEC’s objective clear.