WASHINGTON -- The chairman of the Securities and Exchange Commission said yesterday he opposes a proposal by an SEC commissioner calling for legislation or new rules to regulate rating agencies.
"We've managed without any statute and without any SEC rules to develop the finest rating agency capability in the entire world," Richard Breeden said.
"Why should we step in ans introduce standardization and the SEC's concepts of how you ought to develop rating agencies," when the system is already operating effectively, he said.
Mr. Breeden said he will spell out his views opposing further regulation of rating agencies in a letter he plans to send shortly to Rep. John Dingell, D-Mich., the chairman of the House Energy and Commerce Committee.
Rep. Dingell wrote the SEC chief in late April asking the agency to help draft a bill to regulate rating firms after SEC Commissioner Richard Roberts warned that rating agencies, despite their enormous influence, remain the only largely unregulated participants in the securities market.
Commissioner Roberts proposed that the SEC require rating agencies to meet minimum operating standards and to register with the commission. He also said the commission might need to get Congress to pass legislation giving it added authority.
"I'm not persuaded that we need any more legislation [or] any additional regulation at this point in a formal way," Mr. Breeden said yesterday. "We do have informal oversight" already, he said.
"That is not to say that some of the things Rick [Roberts] has concerns about are not worth keeping an eye on. There are questions. But I'm not persuaded that there is a need at this stage for more formal regulation."
Chairman Breeden's statement does not change Rep. Dingell's views on the need for a bill to regulate rating agencies, an aide to the Energy and Commerce Committee Chairman said yesterday. The committee could draft a bill as early as this year, he said.
SEC Commissioner Roberts warned last month that the number of nationally recognized rating agencies has nearly doubled in recent years and that the SEC has active requests pending for recognition of several foreign and domestic rating agencies. However, he said the SEC receives little information about the firms and their operations.
For example, he said, the SEC's division of market regulation only learned from newspaper accounts about the acquisition of J.J Kenny Co. by Standard and Poor's parent McGraw-Hill Inc. Commissioner Roberts yesterday said he would not comment on Chairman Breeden's statement until he sees the letter Mr. Breeden sends the committee.
"Rating agencies play a terribly important role for investors," Mr. Breeden said. "The U.S. has more highly developed rating agency capability than any country in the world by far because, of course, we have a more diverse securities market.
The agencies are important because "we have relied more heavily on a securities market to finance our economy than most other countries where the banking system plays a relatively larger role and the securities markets play a smaller role," Mr. Breeden said. "In the U.S. it's reversed. The securities industry plays the lead role in financing the economy, and the banking system plays an important, though less central role."
Rep. Dingell said in his letter to Chairman Breeden that he agreed with the views expressed by Commissioner Roberts. He asked Mr. Breeden to provide "technical drafting assistance from the appropriate commission staff in writing such legislation" as soon as possible.
Commissioner Roberts' call for new rules and possible legislation drew objections last month from a spokesman for one rating firm, who said the performance record of rating agencies is good. If that level of performance slides, the market will simply stop paying for ratings, he explained.
One rating agency official said the SEC already is giving firms closer scrutiny under a process that requires the firms to demonstrate they are nationally recognized and have internal procedures that keep potential conflicts of interest under control.