S&P’s steps to further manage potential conflicts of interest, strengthen the ratings process, and better serve the markets
Governance: Ensuring Integrity of the Ratings Process
Establish an Office of the Ombudsman that will address concerns related to potential conflicts of interest and analytical and governance processes that are raised by issuers, investors, employees and other market participants across Standard & Poor's Ratings Services ("S&P") businesses. The Ombudsman will have oversight over the handling of all issues, with authority to escalate all unresolved matters, as necessary, to the CEO of McGraw-Hill and the Audit Committee of the Board of Directors. »Progress
We have begun a search for candidates and will appoint an Ombudsman by year-end.
Engage an external firm to periodically conduct an independent review of S&P Ratings' compliance and governance processes for the purpose of publicly issuing an opinion that addresses whether S&P is effectively managing potential conflicts of interest and maintaining the independence of its ratings. »Progress
We are finalizing and implementing relevant policies and are in the process of identifying a firm to conduct the independent review. We anticipate engaging a firm for this review by the end of next year.
Hold periodic reviews with the Audit Committee of the McGraw-Hill Board to discuss S&P Ratings' overall governance and compliance function which will include: (1) key business measures of ratings quality and compliance effectiveness, (2) the concerns and resolution of issues addressed by the Office of the Ombudsman, and (3) results of the independent reviews, by an external firm, of S&P Ratings' governance and compliance processes. »Progress
Review meetings have begun. Meetings will be held three times a year with the McGraw-Hill Audit Committee and once a year with the full Board. Additional meetings or follow-up will be scheduled as requested or necessary.
Formalize functions with responsibility for policy governance, compliance, criteria management and quality assurance of the ratings and make them separate and independent from the Ratings business units. »Progress
- We have established an independent Policy Governance Group (PGG) with the mandate to develop and approve all new Ratings’ policies and procedures. This group is also responsible for the maintenance of policies that are clear, measurable and maintain our standards of quality. PGG membership includes representation from legal and compliance teams as well as the Analytical Policy Board.
- We continue building out our compliance department with additional staff and resources to implement risk-based monitoring of key policies that manage potential conflicts of interests, and enhance compliance training.
- We have reorganized the criteria and quality review functions, increased staffing dedicated to these functions, and have made them independent from the ratings business units. Guidelines for the activities and reporting of the criteria quality review function and process were enhanced. Training has been initiated on new criteria review processes.
-Read our May 8 press release regarding new executive appointments in support of this Action Step, click here.
Establish an enterprise-wide Risk Assessment Oversight Committee that operates separately and independent of the business. The Committee will assess all risks that could impact the ratings process. This committee will also assess the feasibility of rating new types of securities. »Progress
Established the Standard & Poor’s Enterprise Risk Oversight Committee (“SPEROC”). SPEROC has the responsibility to provide critical risk assessment of business strategies and plans, employ appropriate assessment and monitoring of existing and emerging risks, and evaluate risk policies and controls. Regularly scheduled meetings have begun.
Implement “look back” reviews to ensure the integrity of ratings, whenever an analyst leaves to work for an issuer. »Progress
We have commenced a rotation program for our analysts. Additionally, the Structured Finance practice will be limiting lead analysts’ exposure to specific arrangers, and potentially issuers, based on a number of factors that may include: (i) a maximum time period for lead analysts who handle a given arranger or issuer relationship, (ii) a maximum number of ratings assignments per period involving the same arranger or issuer, or (iii) a maximum number of consecutive ratings assignments involving the same arranger or issuer.
Increase level of existing employee training to ensure compliance with policies. »Progress
- We’ve improved access to key Ratings’ policies and Codes of Conduct by adding an icon to analysts’ desktops.
- We are enhancing our global compliance training, which is scheduled for completion in Q3 2008.
- We are developing new modules that enhance our on-line training courses and reinforce key policies for analysts. The new modules will available to analysts in Q3 2008.