U.S. securities regulators say their first annual review of the nation's credit rating agencies finds the companies aren't doing enough to protect their own financial integrity.
The Securities and Exchange Commission report released Friday was mandated by the sweeping financial industry reforms passed last year.
Regulators examined 10 credit rating agencies, including the three largest: Standard & Poor's, Moody's and Fitch.
The report didn't specifically identify which of the credit rating agencies suffered the most troubling weaknesses.
But it chastised the 10 agencies for a series of problems, including inadequate controls over employee conflicts of interest. Regulators also found the companies sometimes didn't even follow their own procedures.
Some examples cited in the report:
_ The agencies had inadequate policies to prevent conflicts that arose when analysts and agency employees own stock in companies they rated.
_ Two of the three big agencies didn't have specific policies to prevent such conflicts when a company they rated held a substantial stake in their agency.
_ One of the bigger agencies failed to follow its own formulas for rating some asset-backed securities.
_ One of the smaller agencies delayed informing investors about changes in its formulas for rating some asset-backed securities.
The three big agencies have been blamed for helping fuel the 2008 financial crisis by giving high ratings to risky mortgage securities, a type of asset-backed security. Those investments later soured when the housing market went bust.
S&P recently reported that the SEC is considering taking civil action against it for its rating of a 2007 mortgage debt offering. Such action could be just the first shot in a legal assault against the major credit rating agencies.
The SEC staff conducted its examination from December 2009 through August 2010. The SEC hasn't determined if any of the findings represent a significant breach of regulations, but the report left that possibility open for future action.
Despite improvements made by some since a previous examination in 2008, there are still problems at all of them, including failures in some cases to follow their own policies, the report said.
Critics say the agencies have a built-in conflict of interest because they are paid by the same companies they rate.
S&P spokesman Ed Sweeney said the company was pleased that the SEC "recognizes the improvements we have undertaken over the last few years."
S&P has invested more than $200 million since 2009 to strengthen its controls and compliance and is committed to making additional improvements, Sweeney said in a statement.
A spokesman for Moody's, Tony Mirenda, said the company "welcomes the SEC's constructive recommendations to our industry."
Fitch Ratings, in a statement, said "Each firm must be judged on its own merits. We are pleased that the SEC report reflects no material deficiencies at Fitch, and any concerns that do pertain to Fitch are being swiftly addressed."