The SEC has approved of two parts of a proposed reform of the regulations that govern credit rating agencies, especially in the context of structured finance. A third portion of the package will be discussed at a meeting on June 25. The first portion, approved unanimously after a brief discussion with staff members involves details of how credit ratings are developed and disseminated. For example, the new rules would prohibit anyone who participates in the rating process from negotiating the fee for it, would require disclosure by rating agencies on their reliance on the due diligence of others to verify the underlying assets and would ban them from structuring the products they rate. It would also ban rating agencies from accepting gifts whose value exceeds $25 from those who receive ratings.

The second part would require agencies to differentiate the ratings they issue on structured products from those on bonds, perhaps through the use of different symbols or by attaching an identifier to the bond ratings. In an interview on Bloomberg, former SEC Chairman Arthur Levitt said he thinks these proposals are a step forward. But he said, “There are many who say that the only way you can eliminate the conflicts that the ratings agencies have is simply to ban them from being paid by the very firms that they are rating.” The third part of the recommended rules package, will review the SEC's many rules that refer to credit ratings as a substitute for compliance with various regulatory conditions and requirements.