Transparency, competition should be part of any new regulatory regime for ratings agencies: S&P’s

Greater transparency, accountability and ongoing competition among ratings agencies should be mainstays of any global regulatory framework for ratings agencies, Standard & Poor’s says in a recent white paper.
Acknowledging weaknesses in the current regulatory regime for ratings agencies, Standard & Poor’s notes the current financial crisis has highlighted the need for a new “financial regulatory architecture.”
S&P’s white paper, Towards a Global Regulatory Framework for Credit Ratings, makes a number of suggestions to establish such a structure.
Many of the specific and general recommendations have to do with making the analytical foundations of the rating system more transparent.
“Regulation that requires robust disclosure of the ratings process, including criteria and methodologies for assigning and updating ratings, would give investors critical information to make informed decisions, to compare ratings, and to form their own opinions on the soundness of an agency’s analytics,” the white paper says. “There is a particular need to identify such models and assumptions in structured finance.”
The white paper recommends a global registration system that would maintain the “competitive market” for ratings agencies, allowing for “more and varying views on credit quality from qualified providers.”
For example, using a “passport” registration approach, a ratings agency would be registered in its home jurisdiction and thereby be recognized in other jurisdictions as well. The registration process would entail the public disclosure of how financial data is analyzed and how the ratings are determined.