Credit Rating Agency Task Force
Top Ranked Task Force Issues
Ranking by SIFMA Credit Rating Agency Task Force
updated: May 7, 2008
Below are 16 issues relating to credit rating agency issues. The SIFMA Credit Rating Agency Task Force ranked the issues in order of importance, and the below listing reflects that order. While the issues are presented in summary form below, they are discussed in greater detail in the April 16, 2008, SIFMA Board memo that was formerly circulated.
The task force stack-ranked the issues that members believed were the top 10 issues in order of importance, reflecting those issues upon which the task force members felt the task force should focus. In making their assessments, they considered each suggested change’s: a) importance; b) feasibility of implementation; and c) whether it is one that – had it been made earlier -- would have been likely to have helped avoid the problems that we have experience of late.
The numbers after each title below reflect the relative importance of the issue in the view of the task force members.
1) Transparency (141). Should we require greater transparency and disclosure in the ratings process? Should pre-sale reports include a summary of how CRAs derived their ratings?
2) Model Quality (118). Can the quality of the models (and their assumptions and inputs) be improved? To what extent is the leverage taken into consideration? Correlation of assets?
3) Surveillance (104). Are precipitous downgrades caused by a sub-optimal surveillance process? Does it not focus sufficiently on structured products? Because they are “one-offs?
4) Regulatory Dependence on Ratings (97). Should there be a review and overhaul of regulatory provisions, to reduce inappropriate dependence on ratings and let investors draw their own conclusions from “expert” opinions and market data?
5) CRA Performance (94). Should CRAs disclose their performance over time, increasing their accountability? Should SEC-approved CRAs be required to still meet objective criteria?
6) CRA Business Model – Who Pays (82). Should we change the business model by having investors (rather than issuers) pay for the CRAs’ ratings (either in whole or in part)?
7) Regulation (71). Should CRAs be more closely regulated? Would that lead to greater inappropriate reliance on ratings, and “micro” regulation?
8) Conflicts of Interest (65). Should stronger CRA internal controls be required to manage conflicts of interest?
9) Change Scales (58)? Should scales be changed? Per CRA suggestions? Include indications of volatility and liquidity, tag securitized products, and analyze unexpected events impact?
10) Oversight Board (57). Should a (global) oversight board police CRAs’ ratings techniques /governance? Should there be audits? What are public policy implications of the CRA role?
11) Competition (55). Should we encourage more CRAs to compete for business? Would there be sufficient demand? Ratings shopping? A race to the bottom?
12) Rating Different Asset Types (55). Should the inconsistency in how comparable ratings in different asset types compare (e.g., munis vs. corporates) be addressed?
13) Misunderstandings/Investor Education (48). Should we promote investor education (and best practices) leading to proper use of ratings? Through regulation?
14) IOSCO Code (19). Should the IOSCO Code of Conduct be updated, and encourage enhanced market scrutiny of its proper implementation?
15) Designating CRAs (15). Should the SEC process for designating CRAs be changed to be based on performance-based criteria?
16) Specialized CRAs (7). Should we have niche CRAs, approved for specialized purposes?