I think that it's a de-facto monopoly in that if you set up your own bond rating agency, nobody would be compelled by law to only invest in things that your rating agency considered "investment grade".
That's right. The ratings agencies sit at a critical junction in the American (and global system) so when they fail, or have mixed incentives, the whole system breaks, which is a major part of the story of 2008.
It wasn't always that way. There's a Planet Money podcast covering how the ratings agencies came to be and how thet got their legal significance. Interesting story.
These days it is a bit more complicated. Now just about anyone sensible can become a "blessed" agency, a Nationally Recognized Statistical Rating Organization (NRSRO).
The catch is that the biggest rating agencies accept payments by the company issuing the bond. What happens is that Bank of Insanity gives Moody's a check for $500k to rate their super-senior diseased livestock bond. Moody's then says "at least 5% of the cows will probably survive, and $500k is a lot of money, so this bond is investment grade!"
I'm confused. Surely if I decided to set up my own bond rating agency nobody could stop me?