The financial crisis has provided an unexpected crash course on credit rating agencies, such as Moody's, Fitch and Standard & Poor's, which stamped triple-A ratings on a broad spectrum of subprime mortgage securities -- implying that they were nearly risk free -- then back-pedaled when the debt collapsed, taking with it the global economy.
In the United States, the resulting clamor for ratings agency reform led to a U.S. Securities and Exchange Commission (SEC) proposal that sought to mitigate conflicts of interest and enhance disclosures, require ratings firms to differentiate ratings for structured products, and nearly eliminate the role of ratings in SEC regulations. But the final rules the SEC adopted last December were far less stringent than the ones it had proposed six months earlier, in June.
Europe, on the other hand, became the world's most stringent regulator of ratings agencies when the European Union and the European parliament approved a package of ratings agency rules on April 23. The question now is whether the U.S. will follow Europe's lead and build on the new regulations, or go a different route.
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