Department of Labor Proposed Amendment to Underwriter Exemption

On December 28, 2012, the Department of Labor published a proposed amendment to the definition of the term “Rating Agency” under Section III.X of the individual Prohibited Transaction Exemptions (otherwise known as the Underwriter Exemptions).  The proposed amendment would eliminate any specific reference to a particular credit rating agency, and substitute a requirement that a credit rating agency: (i) be currently recognized by the SEC as an NRSRO; (ii) have indicated on its most recently filed SEC Form NRSRO that it rates ‘‘issuers of asset-backed securities’’; and (iii) have had at least 3 ‘‘qualified ratings engagements’’ within a period not exceeding 12 months prior to the closing of the current transaction.  Comments on the proposed amendment must be submitted by February 11.  DOL Notice of Proposed Amendment.

SEC Extends NRSRO Extraterritorial Exemption from Rule 17g-5

On November 16, the SEC extended the temporary conditional exemption for NRSROs from complying with Rule 17g-5(a)(3) for rating covered transactions until December 2, 2012. Rule 17g-5(a)(3) requires that an NRSRO must maintain a password-protected website containing the information provided to it by the arranger for each structured finance product for which it is in the process of determining a credit rating. Under the exemption, an NRSRO is not required to comply with Rule 17g-5(a)(3) where: (i) the issuer is a non-U.S. person and (ii) the NRSRO reasonably believes that the structured finance products will be sold only outside of the U.S. SEC Release.

HFSC Approves Bill to Repeal Section 939G of Dodd-Frank Act

On July 20, the House Financial Services Committee approved H.R. 1539, the “Asset-Backed Market Stabilization Act of 2011”, to repeal Section 939G of the Dodd-Frank Act. The repeal of Section 939G would reinstate Rule 436(g) of the Securities Act under which NRSROs are excluded from being treated as experts subject to expert liability when credit ratings are included in registration statements under the Securities Act. HFSC Release. HFSC Act.

SEC Proposed Rules on Credit Ratings

On May 18, pursuant to Section 932 of the Dodd-Frank Act, the SEC proposed rules for credit ratings, NRSROs, and third-party due diligence providers for ABS. NRSROs would be required to: (i) report on internal controls; (ii) protect against conflicts of interest; (iii) establish professional standards for credit analysts; (iv) publicly provide disclosure concerning specific credit ratings and the methodology used; and (v) enhance public disclosure on the performance of credit ratings. The proposed rules would also require a third-party due diligence provider to provide a public written certification to any NRSRO that rates the ABS. Comments must be submitted within 60 days after publication in the Federal Register. SEC Release. SEC Proposed Rule.

Bill to Reinstate Rule 436(g) Introduced

On April 14, Representative Steve Stivers introduced a bill to reinstate Rule 436(g) of the Securities Act. The bill would repeal Section 939G of the Dodd-Frank Act, under which Section 436(g) was repealed. The reinstatement of Rule 436(g) would exclude NRSROs from being treated as “experts” when their ratings are included in a registration statement. A copy of the bill will be posted on Thomas.

Rule 17g-5 Exemption for Non-U.S. Persons

On May 19, the SEC issued an exemptive order stating that an NRSRO is not required to comply with Rule 17g-5(a)(3) until December 2 with respect to credit ratings for structured finance transactions where:  (i) the issuer of the structured finance product is a non-U.S. person, and (ii) the NRSRO has a reasonable basis to conclude that the structured finance product will be offered and sold upon issuance, and that any arranger will effect transactions of the structured finance product after issuance outside of the U.S.  The SEC is also requesting comments on the application of Rule 17g-5(a)(3) to transactions outside of the U.S. SEC Exemptive Order.