The U.S. Securities and Exchange Commission may propose dropping credit-rating references from money-market fund regulations and using a different method for evaluating their portfolios.

SEC commissioners may seek comment on a proposed rule to instead use internal assessments for money market funds, according to a fact sheet released by the agency. The funds themselves would be responsible for weighing the credit quality of the securities in the proposal, which would be open for public comment until April 25.

The Dodd-Frank regulatory overhaul enacted in July requires regulators including the SEC to eliminate references to credit ratings in their rules by July 21, replacing them with an “appropriate” new standard.

Commissioner Luis Aguilar said in remarks prepared for today’s meeting that he’s concerned the proposal eliminates an “objective standard” and relies on the existing requirement that fund boards evaluate the strengths of their own portfolios.

“We have been told frankly and directly that serious harm would flow from such an ill-advised action,” Aguilar said. He said he still intends to vote that the proposal be open to public comment.

In 2008, the $62.5 billion Reserve Primary Fund -- having invested in debt issued by Lehman Brothers Holdings Inc. -- became the biggest money market fund to “break the buck” when share value fell below $1 and investors faced losses.

Repo Rule

Today’s proposal also would change a second rule within the Investment Company Act of 1940, removing the use of credit ratings to assess collateral in repurchase agreements. Such agreements entered the public spotlight when Lehman Brothers allegedly used its so-called Repo 105 transactions to conceal the nature of its holdings before the firm’s 2008 collapse.

The commissioners already started the effort to remove credit ratings on Feb. 9, when they opened a comment period on the replacement of ratings in short-form registrations for the public sale of securities.

In another Dodd-Frank rule the commissioners will consider today, broker-dealers and investment advisers with more than $1 billion in assets would have to report their incentive-based compensation plans to the SEC annually. The regulator would assess whether the plans encourage taking risks that could lead to a “material financial loss” for the firm, according to Dodd-Frank.

The rule is required to be jointly adopted by U.S. financial regulators. On Feb. 7, the Federal Deposit Insurance Corp. proposed rule language that is similar to the SEC proposal.

The SEC rule, which carries a 45-day comment period, would compel larger firms with more than $50 billion in assets to defer at least 50 percent of incentive-based pay over for three years and subject packages to possible claw backs for company losses.