SEC to wean markets off credit ratings

(Reuters) - Securities regulators on Wednesday will move to scale back markets' reliance on credit rating agencies, after the financial crisis laid bare the industry's shortcomings.
The Securities and Exchange Commission is expected to propose that one of its key documents for securities offerings no longer include ratings references designed to give investors confidence in the company behind the securities offering.
The SEC's effort to extract rating references predates the financial crisis, but it lost steam when global financial markets started going into panic mode.
In 2009 the agency stripped some rating references from regulations, saying it was concerned about undue reliance on the ratings, but the removal of everything was not mandatory.
The Dodd-Frank financial law, however, changes that by requiring government agencies to go through their regulations and remove rating references.
On Wednesday, the SEC will resuscitate a similar plan it proposed in 2008, in its first move to remove ratings from its regulations since the Dodd-Frank law was enacted in July.
Credit-raters have often been blamed for helping fuel the crisis by giving overly positive ratings to loans backed by toxic subprime mortgages.
Dodd-Frank mandates some credit-rating reforms, such as mitigating conflicts of interest, holding credit-raters accountable for their ratings and reducing investor reliance on them.
But credit-raters such as Moody's Corp, McGraw-Hill Cos' Standard & Poor's, and Fimalac SA's Fitch Ratings are not facing the same sweeping overhaul as banks and mortgage lenders, largely because lawmakers could not come up with a good alternative to what they offer.
The lack of a good alternative has even caused some financial regulators to worry that Dodd-Frank goes too far, especially bank regulators who rely on ratings providers to assess the risk associated with a bank's capital.
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The SEC's proposal on Wednesday specifically would strip rating references from a form known as an S-3, a simplified registration form designed to expedite the process for a primary offering of public securities.
A company can qualify to file an S-3 if it meets criteria that make the SEC comfortable with it's getting greater access to the public securities market.
Companies offering nonconvertible debt securities, for instance, can qualify for an S-3 filing as long as the debt is given an investment grade rating.
The SEC plans to propose stripping out that rating requirement and replacing it with an alternative.