In a letter to the U.S. Securities and Exchange Commission, Standard & Poor’s Ratings Services expressed its support for the SEC’s proposed new rules concerning credit rating agencies, but cautioned it from becoming too restrictive when it implements the new criteria.

“Over the last century credit ratings have provided an effective, independent and objective tool in the market’s evaluation and assessment of credit risk and, by virtually all accounts, have served the U.S. securities markets extremely well,” says S&P’s president Kathleen Corbet, in a comment letter to the SEC.

She notes, S&P had previously recommended the SEC increase the transparency of the credit rating agency designation process, reduce regulatory barriers to entry and at the same time ensure the capital markets remain the ultimate arbiter of the credibility of the ratings process.

“We believe that the proposed rule is a step toward accomplishing these important goals,” Corbet says. “To ensure that the market receives rating agencies’ best judgments of an issuer’s or issue’s creditworthiness, analysts and ratings committees must be free to issue rating opinions without being restrained by the imposition of government-drafted norms that could erode the individual quality and independence of their analysis, stifle innovation and ultimately limit the availability of valuable credit analysis and information in the marketplace.”

She adds, S&P is encouraged by the fact that the rule “reflects an understanding of the need to avoid intrusive regulation that will compromise these vital principles of independence and editorial control.”

On April 25, the SEC published for comment a proposed new rule, which would define the term ‘nationally recognized statistical rating organization’ (NRSRO). The proposed definition contains three components, which must each be met in order for a credit rating agency to be an NRSRO. “Defining the term ‘NRSRO’ and providing interpretations of the definition would increase transparency,” comments Fitch Ratings.

Standard & Poor’s points out that requiring rating agencies to use their own “systematic procedures” to manage perceived conflicts of interest, prevent misuse of non-public information, and maintain sufficient resources “is consistent with actions taken in Europe by the Committee of European Securities Regulators which recently approved oversight of rating agencies based on self regulation and market forces, and the International Organization of Securities Commissions, which issued its Code of Conduct Fundamentals for Credit Rating Agencies in December 2004.

“We urge the commission to clarify that any new rules and regulations will not be meant to establish commission control over the manner and method in which [CRAs] gather information about issues and issuers; analyze that information; form opinion about that information; and disseminate those opinions to the market,” it adds.