A key financial-industry investment group said U.S. regulatory proposals to improve the credibility of bond ratings may not go far enough.
The CFA Institute, which represents 96,000 investors, brokers, analysts and others in finance-related professions, said in a poll to be released this week that many of its members want a new regulatory organization to police rating firms and a different set of rating symbols for structured products such as mortgage-backed securities and collateralized debt obligations.
Credit-rating firms "have more than just a perception problem about their processes and integrity," said James Allen, a director at the CFA Institute Centre for Financial Market Integrity.
Officials from the CFA organization, which awards the chartered-financial-analyst designation, have met with officials of large ratings firms, such as McGraw-Hill Cos.' Standard & Poor's and Moody's Corp.'s Moody's Investors Service, in recent months to discuss their concerns about ratings being influenced too much by bond issuers that pay for the ratings and have a financial interest in higher ratings for their bonds.
The CFA's concern was spurred last year by the downgrades of thousands of mortgage-related bonds, and grew with the survey's finding that 11% of the 1,940 respondents globally said they had "witnessed" a ratings firm "change a rating as a consequence of pressure or influence" from an outside party such as a bond underwriter.
Kurt Schacht, managing director of the CFA Institute Centre, called that finding "the most troubling" in the poll because it suggests ratings firms aren't following their own procedures, which bar ratings officials from being influenced by outside pressure. The affirmative answers represent only about 0.2% of the CFA's total membership. Mr. Schacht said they could reflect behavior witnessed years ago.
The poll, completed last week, also showed that 55% said ratings firms should form an international self-regulatory organization to enforce rules about conflicts of interest and disclosure. The U.S. Securities and Exchange Commission took more-formal oversight of ratings firms last year, a step European regulators may follow. Overall, the survey indicated a preference for adding more outside monitoring of ratings firms' practices.
About 47% of respondents said regulators should compel ratings firms to use symbols for structured-finance products that differ from those used for ordinary corporate debt, while 42% said they shouldn't. Wall Street firms have said changing from the triple-A scale would be costly and potentially disruptive to already-battered parts of the market.
The SEC proposed a new rule in June that would give ratings firms the choice between using new symbols for structured products or publishing more research about the products' risks. "Given the level of confusion, we felt there should be a more overt requirement" to use different symbols, said Mr. Schacht.
Ratings firms have taken several of their own steps to restore credibility, including conducting internal surveys, reviewing ratings issued by analysts who have left for Wall Street firms, adding more internal oversight and providing more educational materials about ratings for investors.
S&P President Deven Sharma said in a statement that the company's "reputation for independence is our most valuable asset" and that it maintains policies "to support the objectivity of our ratings."
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