December 22, 2012
A SEC staff study looks at three ways to reform the manner in which ratings are produced for structured finance securities.
The study, required by Dodd-Frank, addresses
(1) The credit rating process for structured finance products and the conflicts of interest associated with the issuer-pay and the subscriber-pay models;
(2) The feasibility of establishing a system in which a public or private utility or a self-regulatory organization (“SRO”) assigns NRSROs to determine the credit ratings for structured finance products, including:
(a) An assessment of potential mechanisms for determining fees for NRSROs for rating structured finance products;
(b) Appropriate methods for paying fees to NRSROs to rate structured finance products;
(c) The extent to which the creation of such a system would be viewed as the creation of moral hazard by the Federal Government; and
(d) Any constitutional or other issues concerning the establishment of such a system;5
(3) The range of metrics that could be used to determine the accuracy of credit ratings for structured finance products;6 and
(4) Alternative means for compensating NRSROs that would create incentives for accurate credit ratings for structured finance products.