House committee approves new investment rating regulations

[JURIST] The US House Financial Services Committee [official website] voted 49-14 Wednesday to approve new regulations governing investment rating agencies. The Accountability and Transparency in Rating Agencies Act [HR 3890 text], sponsored by Paul Kanjorski (D-PA) [official website], modifies the Securities Exchange Act of 1934 [text, PDF], giving the Securities and Exchange Commission (SEC) [official website] the authority to monitor and punish ratings agencies. Kanjorski sees the need for increased regulation, saying [press release]:


The Accountability and Transparency in Rating Agencies Act aims to curb the inappropriate and irresponsible actions of credit rating agencies which greatly contributed to our current economic problems. This legislation builds on the Administration’s proposal and takes strong steps to reduce conflicts of interest, stem market reliance on credit rating agencies, and impose a liability standard on the agencies. As gatekeepers to our markets, credit rating agencies must be held to higher standards. We need to incentivize them to do their jobs correctly and effectively, and there must be repercussions if they fall short. This bill will take such steps. I look forward to moving it through the legislative process.”

With the bill out of committee, a vote on the floor of the House could be scheduled as early as next month.

Since the subprime mortgage crisis, lawmakers have discussed extensive reforms to US financial regulations [JURIST news archive]. Although some reforms have already been enacted, President Barack Obama called for even stronger regulations [JURIST report] for certain aspects of the financial industry when he gave a speech marking the one-year anniversary of the collapse of Lehman Brothers Holdings. Lawmakers have charged investment rating agencies for misleading investors by promoting high-risk securities secured by subprime mortgages. In September, 2008, the SEC charged two former brokers [JURIST report] with fraud for misrepresenting subprime-backed securities.

 

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