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Since the credit crunch hit the markets, the rating agencies have taken a load of flack – it seems convenient to heap all the blame on them. After all, innocent fund managers would not have bought dead fish securitised bonds had the rating agencies not assured them they smelt like live salmon! Now it seems that Clark Kent is thinking of changing into his superpower underpants and fighting back.
Attacks, other than those from the press, have come from IOSCO, the EU, the NY Fed and, most seriously, the SEC. The NY Fed is in the courts and is unlikely to have any wide-reaching effect. The IOSCO intervention has been criticised as being toothless and as too little, too late. The EU is torn between supporting IOSCO, a largely European initiative, or in putting its weight behind the SEC initiatives.
The Securities and Exchange Commission wants full disclosure of what the rating agencies are being told (rating agencies depend largely on what information they are given – they do not do independent enquiries) but no one is sure who is responsible for making data public. The SEC has not said who is responsible; it could be agencies, or it could be the arrangers or trustees that created the financial products.
This ambiguity over responsibility has not impressed the rating agencies, which are concerned about their liability. Standard & Poor's have said that “the regulator could be overstepping its bounds, and is unnecessarily calling for a radical reordering of the roles and responsibilities of the parties involved in a securities offering.” S&P also says that the SEC is violating its legal freedoms by saying it can't publish ratings until the data behind those ratings has been disclosed.
So far, most of the letters received by the SEC in the 30-day public comment period on its rule proposals are against new rules and want more enforcement of existing rules. The SEC has spoken – but will the quiet man in glasses start to fight back?
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