SEC Issues Annual Report on Credit Rating Agencies

The U.S. Securities and Exchange Commission (SEC) issued its two annual staff reports on credit rating agencies registered as nationally recognized statistical rating organizations (NRSROs). The reports show that NRSROs have made operational improvements and have enhanced process accountability, controls and governance. Also smaller NRSROs have made competitive inroads in certain rating categories.

The annual examination report summarizes the staff’s findings from the examinations of each NRSRO as required by the 2010 Dodd-Frank Act. SEC examiners performed risk assessments on specific areas while examining the eight required review areas.

The report shows that all the NRSROs have enhanced their understanding of their obligations as regulated entities and that at many of the firms, operational improvements made in prior years are being further integrated and enhanced.

The annual report mandated by the 2006 Credit Rating Agency Reform Act discusses the state of competition, transparency and conflicts of interest at NRSROs. The report notes that certain smaller NRSROs have continued to increase their market share, particularly for credit ratings of asset-backed securities.
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Separately, the report also discusses new requirements for NRSROs that took effect in June to address internal controls, conflicts of interest, disclosure of credit rating performance statistics, procedures to protect the integrity and transparency of rating methodologies, disclosures to promote the transparency of credit ratings, and standards for training, experience and competence of credit analysts.

Mary Jo White, SEC chair, commented:

These reports demonstrate the SEC’s vigilant oversight of the credit rating industry. The staff’s continued efforts are yielding valuable results as we are seeing improvements in the overall compliance cultures at many of the credit rating agencies.

Thomas J. Butler, director of the SEC’s Office of Credit Ratings, added:

Regular examinations of each NRSRO are an important component of the SEC’s oversight regime. The staff is in contact with the firms throughout the year at all levels of the organization to maintain lines of communication, assess potential risks, and promote transparency and compliance.