Moody’s compliance officer resigns.  It is the fourth compliance officer in three years.

On May 18th 2011 the Securities and Exchange Commission advanced the rules for public comment after a 5-0 vote.  The new rules, which were required under the financial overhaul passed last year by Congress, would force the agencies to provide more details about how they determine each rating. They would also bar the agencies’ sales people from participating in the ratings process. And agencies would be required to review and potentially revise their ratings in cases where an employee was later hired by a company he or she rated.

The public has 60 days to comment on the rules. After that, the SEC would likely enact them, possibly with changes. Congress gave the SEC a formal deadline of mid-July, but the regulators have already indicated they won’t meet that timeframe.

While critics of the rating agencies welcome such tighter rules it should be recognized that rating agencies may now become super cautious when it comes to new ratings or ratings reviews.  They may refuse to rate certain corporate, governments, and structured finance securities altogether. New emerging industries will not be able to get ratings because of the lack of historical data. 

Perhaps as a direct consequence of the tighter rules by the SEC it appears that the job of being a compliance officer at a rating agency becomes too complex and untenable.  According to a report in the Wall Street Journal Moody’s Investors Service’s chief compliance officer has left his position which he held since August 2009.   It is Moody’s fourth compliance officer in three years.  It may be quite feasible that others may want to leave the rating business as well.  Who in the end will rate bonds?    Source:  Media Commentary