“The Securities and Exchange Commission is considering whether to take a more active role in overseeing credit-rating agencies, including regular inspections, a senior official told lawmakers Wednesday,” according to a story in today’s Wall Street Journal Online.

“New record-keeping requirements for the credit-rating agencies are another possibility, SEC Market Regulation Division Director Annette Nazareth said in testimony to a House Financial Services Committee.”

“The SEC issued a report to Congress on credit-rating agencies earlier this year and plans to float proposals shortly.”

“Rating agencies have come under fire for failing to flag some of the companies that imploded in major corporate scandals last year. The scrutiny means the agencies now may join the ranks of accounting firms and Wall Street research houses that have come under the spotlight in the aftermath of a stock-market bubble.”

“One possible change would eliminate the regulatory use of ‘nationally recognized statistical-rating organizations,’ or NRSROs. Such designation allows a firm’s ratings to be used as a tool by bond investors evaluating fixed-income investments and by companies and other issuers selling debt.”

“The companies designated as NRSROs are Moody’s Investors Service, Standard & Poor’s, Fitch Ratings and Dominion Bond Rating Service Ltd., which received the designation in February. Firms have long complained that the big three – Moody’s, S&P and Fitch — shouldn’t be the only companies designated as NRSROs.”

“To get designation as an NRSRO, firms must meet criteria such as proving they are ‘widely accepted in the U.S. as an issuer of credible and reliable ratings.’ But the process could change as the SEC looks into the entire structure of the ratings agencies.”

“Eliminating the regulatory use of NRSROs would make it easier for newcomers to break into the industry, Ms. Nazareth said in her testimony. She noted that given the widespread use of the NRSRO designation, ‘substitutes would need to be developed by authorities other than the commission.’ “