The Senate Banking Committee Wednesday passed a bill giving the U.S. Securities and Exchange Commission authority to regulate credit-rating agencies.
The Credit Rating Agency Reform Act bill, which at press time did not have a number, gives the SEC the authority to step in when it sees conflicts of interest or anti-competitive practices. The bill does not give the SEC the authority to regulate rating agencies’ criteria or methods.
Companies affected by the bill include A.M. Best Company, Fitch Ratings, Moody’s Investors Corp. and Standard & Poor’s Ratings Services.
Committee members passed the rating agency bill by a voice vote.
The Senate bill specifies standards for firms seeking to be designated as “nationally recognized” rating agencies. The agencies must have a 3-year track record, and the SEC can deny national recognition to firms without the resources to consistently produce high-quality assessments of debt issued by corporations and governments.
The new bill is different than H.R. 2990, the rating agency bill that the House passed in July.
H.R. 2990 would give the SEC greater authority to regulate rating firms and streamline the process for firms that want to gain national recognition as rating agencies.
Sen. Richard Shelby, R-Ala., chairman of the Senate Banking Committee, said he hopes the full Senate will vote on the Senate version of the bill this fall.
“By increasing competition, the bill will protect investors by improving ratings quality and providing greater transparency and accountability,” Shelby said in a statement.
Sen. Paul Sarbanes, D-Md., said the new bill has broad support from mutual fund, bond market and labor groups.
Standard & Poor’s, the largest rating agency, says it prefers the Senate bill over the House bill.
“The current version takes a constructive approach to increasing competition and transparency in the credit ratings industry,” says Majory Appel, an S&P spokeswoman.
“We are encouraged that further improvements and clarifications will be made in order to safeguard the independence of the credit rating process,” Appel says.
Earlier, Fitch Ratings said it believes the Senate bill “represents a significant step forward to prudently enhance competition in the rating agency industry.”