FLORHAM PARK, N.J.
FLORHAM PARK, N.J., Aug. 2 /PRNewswire/ -- Financial Executives International''s (FEI) Committee on Corporate Finance (CCF) today announced its formal support of The Credit Rating Agency Reform Act of 2006, the Senate's version of H.R. 2990. FEI is the leading professional association for CFOs and other senior financial executives. The CCF submitted a letter to Senate Banking Committee Chairman, Senator Richard Shelby, and Ranking Minority Member, Senator Paul Sarbanes, in support of the legislation being considered this week by the committee.
While FEI's CCF recognizes the vital role that credit rating agencies play in the U.S. and world financial markets, CCF believes that credit rating agency reforms should be pursued. FEI's CEO and President, Colleen Cunningham, testified before the U.S. Senate Committee on Banking, Housing and Urban Affairs at their March hearing to assess the current oversight and operation of credit rating agencies.
"FEI's Committee on Corporate Finance supports the legislation because it addresses the three issues that are of greatest importance to our members: competition, accountability and conflicts of interest," commented Cunningham. "Of particular significance to our members was the focus on the conflicts of interest issue. Provisions in this legislation successfully tackle conflicts of interest head-on and we are deeply satisfied with their inclusion."
CCF is pleased that the bill specifically authorizes the SEC to prohibit NRSROs from providing fee-based advisory services to its rated clients. CCF has strongly stated from the outset that credit rating agencies should not offer such consulting services to their rated clients and that the subtle pressure to purchase such services should not be a part of corporate dealings with credit rating firms.
With regard to the competition issue, CCF is aware that with more than 100 credit rating agencies (CRAs) operating worldwide, and only five that are designated as NRSROs by the SEC, there is a need for increased competition.
"The bill does away with the current no-action process for recognizing NRSROs and replaces it with a transparent, voluntary registration process," said Cunningham. "This will almost certainly attract more credit rating agencies to the industry, which should lead to increased competition, better pricing, and new product introduction. This will benefit both issuers and investors."
On the accountability issue, CCF considers this bill to take two important steps to increase transparency for the way in which NRSROs conduct business: (1) requires periodic, updated filings with the SEC and (2) grants the SEC disciplinary authority to take action against any NRSRO that fails to comply with its own policies.
"Moreover, this legislation adequately addresses some of the First Amendment issues raised by some. By making the NRSRO registration process voluntary, it alleviates any concerns that a CRA's free speech might be impeded," commented Cunningham. "Overall we are extremely pleased that the House has passed this bill and we strongly encourage the Senate to consider similar legislation this year."
Financial Executives International (FEI) is the leading advocate for the views of corporate financial management. Its 15,000 members hold policy-making positions as chief financial officers, treasurers, and controllers. FEI enhances member professional development through peer networking, career planning services, conferences, publications, and special reports and research. Members participate in the activities of 86 chapters, 75 of which are in the United States and 11 in Canada. For more information, visit http://www.fei.org/.
FEI's Committee on Corporate Finance (CCF) was established in 1980 and is authorized to formulate statements and positions on capital markets and the capital structure and financial resources of corporations, including policies, practices, rules, regulations, principles and standards. CCF addresses issues that include: debt and investment management, risk management, mergers and acquisitions, economic and financial analysis, financial communications, annual meetings and annual reports, and stockholder and investor relations.
SOURCE: Financial Executives International
CONTACT: Kristen Crofoot of Financial Dynamics, +1-212-850-5692,
Web site: http://www.fei.org/