WASHINGTON - The Obama administration yesterday sent the US Congress legislation seeking to tighten government oversight of Wall Street’s credit rating agencies and stem potential conflicts of interest in their business practices to protect investors.
The plan also seeks to reduce reliance on an industry widely criticized for failing to give investors adequate warning of the risks in subprime mortgage securities that triggered the financial crisis.
The legislative proposal is meant to bring greater transparency to the rating agencies and would bolster the authority of the Securities and Exchange Commission over them. Now voluntary, registration would be made mandatory for all agencies large and small.
Investor advocates and other critics maintain that conflicts of interest can arise under the current system when companies that issue securities - as opposed to investors - pay the agencies for ratings.
Assistant Treasury Secretary Michael Barr said the proposal would not force agencies to change how they come up with ratings, but would improve “transparency and disclosure’’ surrounding existing methods.
The proposal is the latest in a series rolled out in recent weeks by the Treasury Department as part of the administration’s sweeping plan for overhauling the US financial rule system to help avert another meltdown.
Several lawmakers also have proposed stiffer federal supervision of the $5 billion-a-year industry dominated by McGraw-Hill Cos. Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings.
The agencies are crucial financial gatekeepers, issuing ratings on the creditworthiness of public companies and securities.
Their grades can be key factors in determining a company’s ability to raise or borrow money, and at what cost, and which securities will be purchased by banks, mutual funds, state pension funds, or local governments.
