SEC moves forward with tougher oversight rules for credit-raters

The Securities and Exchange Commission (SEC) voted Wednesday to seek public comment on rules proposing tougher oversight for credit rating firms.

The proposals, required by the Dodd-Frank financial regulatory reform law, would hold firms more accountable for how they determine their debt ratings for companies and governments, which can affect investors decisions and if the company can raise or borrow money. 

The big three rating agencies -- Moody's, McGraw Hill's Standard and Poor's and Fimalac SA's Fitch Ratings -- were criticized for helping fuel the financial crisis by giving low-risk ratings to high-risk mortgage securities that later failed. 

The SEC advanced the rules for public comment by a 5-0 vote. 

The rules would require the credit rating firms to create and assess the new internal controls and provide the SEC with an annual report and require training of the analysts and prohibit certain agency employees from participating in the ratings process.

Critics argue that the agencies have a conflict of interest because they get paid by the firms they rate. 

A bipartisan report released in April by the Senate Permanent Subcommittee on Investigations found that the credit rating agencies, including Moody's and S&P, knew about problems in the housing market and the gave risky mortgage products low-risk ratings.