BUSINESS

SEC Finds 'Apparent Failures' At 10 Credit Rating Agencies

09/30/2011 11:21 am ET | Updated Nov 30, 2011

WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission staff found "apparent failures" at each of the 10 credit rating agencies it examined, including Standard & Poor's and Moody's, the agency said on Friday in its first annual report of credit raters.

The SEC staff said concerns include failures to follow ratings methodologies, failures in making timely and accurate disclosures and failures to manage conflicts of interest.

The SEC's annual report was required by last year's Dodd-Frank financial oversight law.

The staff report did not single out by name any credit-rating agency for questionable actions.

It also said the SEC has not determined that any of the report's findings constituted a "material regulatory deficiency" but said it might do so in the future.

"We expect the credit rating agencies to address the concerns we have raised in a timely and effective way, and we will be monitoring their progress as part of our ongoing annual examinations," said Norm Champ, deputy director of the SEC's Office of Compliance Inspections and Examinations.

The SEC's report covers 10 credit-rating firms including Moody's Corp, McGraw-Hill Cos Inc's Standard & Poor's and Fimalac SA's Fitch Ratings.

Congress first empowered the SEC to closely regulate the firms in 2006, and Dodd-Frank gave the agency even greater powers over the industry.

Credit raters have been widely criticized for fueling the financial crisis by giving inflated ratings to toxic subprime mortgage securities.

On Monday McGraw-Hill disclosed that the agency might charge its Standard & Poor's unit with breaking securities laws.

SEC Enforcement Director Robert Khuzami told Reuters this week that the agency faces hurdles proving wrongdoing at credit-rating agencies, pointing to the complexity of the cases and the industry's strong legal defenses.

(Reporting by Andrea Shalal-Esa, Aruna Viswanatha, Karey Wutkowski, editing by Gerald E. McCormick)

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