On September 30, the SEC issued its annual report, as required under the Dodd-Frank Act, summarizing its findings after examining the practices of credit rating agencies registered with the SEC as NRSROs and subject to SEC oversight. The concerns outlined in the report include, in some instances, apparent failures by NRSROs to: (i) follow rating methodologies and procedures; (ii) make timely and accurate disclosures; (iii) establish effective internal control structures for the rating process; and (iv) adequately manage conflicts of interest. SEC Release. SEC Report.
NRSROs
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.
SEC Rules for Rating Agencies
On November 23, the SEC adopted rule amendments, effective February 2, 2010, imposing additional disclosure and conflict of interest requirements on NRSROs. Final Rule.
Also on November 23, the SEC proposed rule amendments and a new rule that would require NRSROs to furnish new annual reports describing certain compliance measures and provide additional revenue information. The SEC also announced that it is deferring consideration of action with respect to a rule that would have required NRSROs to either: (a) provide a report describing how procedures and methodologies for rating structured finance products differ from those of other rated products when issuing a structured finance credit rating or (b) use different rating symbols for structured finance products. The SEC is also soliciting comments on: (i) alternative ways to differentiate structured finance credit ratings and (ii) whether the rule amendment, which was adopted to make it easier to determine and monitor non-issuer-paid credit ratings for structured finance products, should be applied before the rule became effective. Comments are requested to be received on or before February 2, 2010. Proposed Rules.