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SEC’s Investor Advisory Committee Must Press for Reforms that Address Conflicts of Interest Among Credit Rating Agencies

FOR IMMEDIATE RELEASE
Wednesday, May 20, 2020
Contact:  Pamela Russell, 202-618-6433 or prussell@bettermarkets.com

 

SEC’s Investor Advisory Committee Must Press for Reforms that Finally 
Address Conflicts of Interest Among Credit Rating Agencies
Ongoing Financial Turmoil Supplies Fresh Evidence of the Need for Action
 
WASHINGTON, D.C. -- Stephen W. Hall, Legal Director and Securities Specialist for Better Markets, issued the following statement as the SEC’s Investor Advisory Committee prepares to meet on Thursday, May 21, and discuss credit rating agencies. 
 
“We are pleased to see that the Committee is going to grapple with the enormous challenges surrounding the oversight of credit rating agencies. As we explained in our recent fact sheet, we now see fresh evidence that inflated credit ratings are once again contributing to extraordinary turmoil in the financial markets. It happened during the 2008 financial crisis as grossly inflated credit ratings assigned to thousands of mortgage-backed securities, followed by sudden downgrades, helped bring our economy to its knees and inflicted losses on millions of investors. Now it appears to be happening again, especially in the market for complex investments built on loans to already highly indebted companies. 
 
“This pattern arises from the powerful conflicts of interest that contaminate the ratings process. It occurs whenever the credit rating agencies boost their ratings to win and retain business from those who seek to raise capital from investors. In the 2010 Dodd-Frank Act, Congress required the SEC to address the problem by implementing a new assignment system on ratings for the most complex products. That mandate remains unmet.
 
“We therefore commend the Investor Advisory Committee for putting credit ratings agencies on the agenda for its meeting tomorrow. Congress has charged the Committee with advising the SEC on its regulatory priorities, including protecting investors, promoting investor confidence, and maintaining the integrity of the securities markets. We urge the Committee to spur the SEC to fully and finally address the conflicts of interest that corrupt credit ratings, hurt investors, and intensify financial crises.” 
 
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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.com.

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