U.S. SEC official: Toughen credit agency oversight

By Rachelle Younglai

WASHINGTON (Reuters) - Regulators must do more to limit conflicts of interest at credit rating agencies created when an issuer or bank pays for a rating, a member of the U.S. Securities and Exchange Commission said on Monday.

The SEC adopted rules in December that prohibit credit raters from rating their own work and ban employees who help determine a credit rating from negotiating any fees.

However, Elisse Walter, one of five SEC commissioners who makes decisions on federal securities rules, said that isn't enough.

"We need to consider alternatives to the issuer-paid model," Walter said at the Institute of International Bankers conference in Washington. "You could have all publicly held companies in the United States pay into that pool."

Walter suggested creating a revenue pool to pay credit raters, which include Moody's Corp (MCO.N), McGraw-Hill Cos Inc's (MHP.N) Standard & Poor's and Fimalac SA's (LBCP.PA) Fitch Ratings.

Critics say the credit raters contributed to the global credit crisis by giving top ratings to mortgage-backed securities that later deteriorated.

The existing way the credit rating industry operates "is a clear conflict of interest," Walter told reporters on the sidelines of the conference. "There either needs to be controls put in that will control for it, or we need to try a different model."

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