"Clearly, we must all do a better job identifying economic trends that could lead to future crises. For their part, governments have established new institutions to identify risks to financial stability, such as the Financial Stability Oversight Council in the U.S. At S&P we have taken to heart lessons learned from the financial crisis and made extensive changes that reinforce the integrity, independence and performance of our ratings, including compliance with today's enhanced regulatory oversight."Since 2007, we have invested approximately $400 million in our systems, governance, analytics and the methodologies that we use to rate securities. We brought in new leadership, instituted new governance and enhanced risk management. We have taken substantive actions to:
- Strengthen independence from issuer influence: We have long had policies in place to manage potential conflicts of interest, including a separation of analytic and commercial activities, a ban on analysts from participating in fee negotiations, and de-linking analyst compensation from the volume of securities they rate or the type of ratings they give out. Post-crisis, we further strengthened analytical independence by rotating the analysts assigned to a particular issuer and enhancing analyst training on issuer interactions.
- Improve the integrity and validity of our methodologies and models: We reassessed the principles underlying the way we rate all debt. Based on what we learned, we changed the way we rate almost every type of security that was affected by the financial crisis including U.S. RMBS, CMBS, CDOs, banks and insurers. For all mortgage-related securities we have significantly increased the credit enhancement required to achieve a AAA rating and have made it more difficult in general for securities to achieve high ratings. We also strengthened our risk management including instituting a Model Validation Process independent of any commercial interests.
- Increase analytical focus on interpreting and responding to global credit changes: We established Credit Conditions Committees around the world to identify and monitor risks to the interconnected global credit systems across all asset classes and create a coordinated credit risk perspective across the company.
- Enhance regulatory compliance and quality: We significantly increased staffing in order to strengthen compliance and analytical quality, including documentation of procedures and ratings actions, and quality reviews of ratings.