The rating agencies have to review their quality control procedure after all the legal hassles they have faced recently. A bill has been placed in the U.S. Senate to review the functioning of the rating agencies. But it is expected that it will be rendered ineffective by the time it reaches the President, and only a part of the problem will be addressed.

Rating agencies such as Fitch, Moody’s Investor Service (MCO), Standard & Poor’s Rating Services, and A.M. Best have recently come up against some strong criticism. This led to the Rating Accountability and Transparency Enhancement Act (RATE) of 2009, which was introduced in May. The bill has been referred to the Senate committee, but has not yet been passed. As per the new bill, the Securities and Exchange Commission (SEC) will be empowered to monitor the functioning of the rating agencies. Besides, both retail and institutional investors will also have the option of conducting legal proceedings against them in case of improper updation of facts.

We believe that the more stringent review process would make things a bit more difficult for rating agencies. While they continue to be protected by the right of freedom of speech and opinion, they will have to pay more attention to misrepresentation or improper representation of facts because this is the area that could increase unwanted litigation.

On the other hand, we continue to believe that the business of credit rating will survive on its own merit, as it continues to be the official criterion used by many investors to define what debt they can and cannot buy. They are also very important for risk assessments by regulators. We believe that following the fundamental policy of providing free, fair and correct information to investors will create a win-win situation for both raters and investors, and ultimately help end customers take informed investment decisions.