S&P and Moodys challenged by Congress bill

The credit rating industry in the United States will open up to more competition if a bill introduced by Representative Michael Fitzpatrick is passed by Congress.

The legislation would let any rating agency that meets certain standards register with the Securities and Exchange Commission.

It would also allow the SEC to inspect rating agencies and regulate how they handle conflict of interest situations and non-public information.

Passage of the bill would not only open up the industry for competition, but it would also greatly reduce the power of such agencies as S&P and Moody’s. Those two agencies currently hold 80 percent of the market between them.

In introducing the legislation, Mr. Fitzpatrick criticized these two agencies for failing to give adequate warning of the disasters at Enron and WorldCom.

Under the current system, the SEC designates select agencies as “nationally recognized statistical rating organizations,” and only credit ratings generated by those agencies are legally valid in the US.

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