July 31, 2006

The Honorable Richard C. Shelby, Chairman, Senate Banking Committee, 534 Dirksen Senate Office Building, Washington, DC  20510

The Honorable Paul S. Sarbanes, Ranking Member, Senate Banking Committee, 534 Dirksen Senate Office Building, Washington, DC 20510

Dear Chairman Shelby and Ranking Member Sarbanes:

Financial Executives International’s (FEI) Committee on Corporate Finance (CCF) applauds the Committee’s decision to mark-up  H.R. 2990, the “Credit Rating Agency Duopoly Relief Act of 2005.”  As drafted, the legislation positively addresses three issues of great importance to our members:  competition; accountability; and conflicts of interest. 

FEI is a professional association representing the interests of more than 15,000 chief financial officers, treasurers, controllers, tax directors, and other senior financial executives from over 8,000 major companies throughout the United States and Canada.  FEI represents both providers and users of financial information.  The FEI Committee on Corporate Finance formulates policy on treasury-related issues for FEI in line with the views of the membership.  This letter represents the views of the Committee on Corporate Finance.

As drafted, this important legislation would generate greater competition in the credit rating marketplace by eliminating the current “no action” process and by replacing it with transparent, voluntary registration requirements.  This will no doubt draw more firms, capital and people to the credit rating business, which should in turn generate greater price competition and new product introductions.

The legislation also recognizes the importance of accountability, and includes language that would require registered credit rating agencies to update and certify their filings on an annual basis.  Furthermore, the legislation vests the SEC with the authority to take action against registered credit rating agencies that contravene their own policies and procedures, or the rulemakings developed by the SEC.  By requiring periodic filings and by giving the SEC the teeth to take action when necessary, the legislation will greatly enhance the accountability of rating agencies.

Finally, the legislation successfully tackles the issue of conflicts of interest head-on.  Specifically, the bill authorizes the SEC to prohibit credit rating agencies from offering fee-based, advisory services to the clients they rate.  This issue proved to be very important to our members, and we are delighted that the language has been included in the bill.  We have stated from the outset that credit rating agencies should not offer such consulting services to their rated clients.  The subtle pressure to purchase such services certainly exists, and we feel it should not be a part of corporate dealings with credit rating firms.

Again, we applaud your efforts to generate greater transparency and competition in the rating agency sector.  Both investors and issuers stand to gain by having more information about the rating agencies available to them, and more rating agencies to choose from.  CCF stands ready to continue working with the Committee on this matter, and urges Congress to enact this important legislation this year.

                                                            Sincerely,

                                                            Colleen Cunningham

                                                            President, Financial Executives International

                                                            On behalf of the Committee on Corporate Finance

cc:        Members of Senate Banking Committee

            SEC Commissioners