US proposes end to credit rating monopolies
by Brian Turner
Legislation introduced last week in the United States would open up the credit rating industry to more competition.
It would end the current system in which the Securities and Exchange Commission designates only select ratings agencies as “nationally recognized statistical rating organizations.”
Only credit ratings issued by those designated agencies are considered legally valid in the US.
The new legislation would allow any rating agency to register with the SEC as long as it meets certain standards.
Not only would the change open up competition, but it would substantially reduce the power of agencies such as S&P and Moody’s, which together currently hold an 80 percent market share in the industry.
The legislation would also let the SEC inspect rating agencies and regulate how they must handle conflicts of interest and non-public information.
Representative Michael Fitzpatrick, who authored the legislation, criticized the near monopoly of S&P and Moody’s, as well as their failure to warn of the collapses of Enron and WorldCom.
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