The pact was reached with Moody's Corp's Moody's Investors Service, McGraw-Hill Co's Standard & Poor's and Fimalac SA's Fitch Ratings, and its goal is to increase the independence of ratings agencies, which have been criticized for helping fuel the U.S. subprime mortgage crisis by assigning high marks to risky securities that later tumbled in value.
Additionally, the accord is aimed at altering the way ratings firms are paid. New York Attorney General Andrew Cuomo said that under the old fee system, the agencies had a financial incentive to assign high ratings because they only received fees if a deal was completed. Under the agreements, the firms will receive payments for service even if a deal is not completed.
"These are reforms that are going to have a dramatic effect on the market," Cuomo said at a news conference unveiling the agreement. Top executives at the three ratings firms stood by his side when the agreement was announced.
Cuomo, who served as U.S. secretary of Housing and Urban Development under President Bill Clinton, has been looking into Wall Street's role in the subprime mortgage crisis since last year.
He said his office has now resolved its probe of the raters' fee practices, and that all three firms had signed a cooperation agreement to help in his ongoing investigation of the mortgage loan industry.