The SEC's Proposed Rating Agency Rules : Unresolved Conflicts

On June 16, the SEC made public new rules intended to increase transparency and reduce conflicts of interest in the credit rating process for fixed-income instruments. The proposal may be most important for what it does not do: The SEC does not plan to forbid the quot;issuer-paysquot; system, in which the rating agencies are paid by the parties whose products are being evaluated. Although the SEC apparently has the power to ban issuer-pays and recognizes that the arrangement creates potential conflicts of interest, the proposed rules address issuer-pays only through a half measure that appears unlikely to be effective