UPDATE 1-SIFMA faults raters, calls for global advisory board

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By Walden Siew

NEW YORK, July 31 (Reuters) - Credit rating agencies failed to check the accuracy of information they used to rate structured bond products and may have relied on data that was "suspect on its face," a U.S. financial industry group said on Thursday.

The Securities Industry and Financial Markets Association also said more transparency is needed to reform a credit rating process that has been criticized for its role in a year-long financial crisis.

The report from SIFMA's 37-member task force noted questions about the "quality" and "integrity" of the rating process, particularly for mortgage debt, and the resulting decline in investor confidence that has weighed on global markets.

"There are indications that some credit rating agencies at times relied on information that may have been questionable or suspect on its face, taking into account market changes at the time," the group said in a report.

Moody's Corp's (MCO.N) Moody's Investors Service, McGraw-Hill Co's(MHP.N) Standard & Poor's and Fimalac's(LBCP.PA) Fitch Ratings have been criticized for assigning top ratings to structured products, fueling a massive increase in mortgage-related debt that collapsed in value during the housing bust.

The SIFMA report is the latest in a string of problems for rating agencies. Connecticut's attorney general said on Wednesday he was suing the three agencies, saying they assigned lower ratings than necessary to bonds issued by cities, schools and other public entities, driving up costs for taxpayers. For details, see [ID:nN30483748]

"The Scarlet Letter syndrome is what we're concerned about, first and foremost," Deborah Cunningham, chief investment officer at Federated Investors, and co-chair of the task force, said on a conference call.