SEC ISSUES ANNUAL STAFF REPORT REGARDING NRSROs

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
12/23/2014 05:15 PM EST

The Securities and Exchange Commission issued its annual staff report on the findings of examinations of credit rating agencies registered as nationally recognized statistical rating organizations (NRSROs) and submitted a separate report on NRSROs to Congress.

“These reports provide the most current and comprehensive picture of the credit rating industry,” said SEC Chair Mary Jo White.  “The SEC’s enhanced oversight of NRSROs, informed by risk assessment, regular examinations and policy considerations, provides increasingly robust and effective oversight of the industry, as reflected by overall improvements in compliance, documentation, and board oversight.”

The 2010 Dodd-Frank Act requires the SEC to examine each NRSRO once a year and issue an annual report summarizing the examination findings.  In addition to covering eight areas required by the Dodd-Frank Act, SEC examiners used risk assessment tools to identify specific areas of focus such as information technology, cybersecurity, or certain ratings activities.  During the 2014 examinations, the staff observed improvements concerning:

Compliance resources, monitoring, and culture
Documentation and resources for criteria and model validation
Document retention
Board of directors or governing committee oversight
The staff made recommendations for improvement in certain areas, including:

Use of affiliates or third-party contractors in the credit rating process
Management of conflicts of interest related to the rating business operations
Adherence to policies and procedures for determining or reviewing credit ratings
“The findings and recommendations in the 2014 examination report demonstrate the impact of rigorous oversight by the SEC and regular examinations by the Office of Credit Ratings,” said Thomas J. Butler, Director of the SEC’s Office of Credit Ratings.

The annual report to Congress, which is required by the Credit Rating Agency Reform Act of 2006, details the state of competition, transparency, and conflicts of interest at NRSROs.  The staff report includes a discussion of the new requirements for NRSROs adopted by the Commission in August 2014 to improve the quality of credit ratings and increase credit rating agency accountability through enhanced transparency, governance, and protections against conflicts of interest.

The following SEC staff made significant contributions to the examinations and reports:  Diane Audino, Rita Bolger, Patrick Boyle, Matthew Chan, Kristin Costello, Scott Davey, Shawn Davis, Franco Destro, Michael Gerity, Kenneth Godwin, Natalia Kaden, Julia Kiel, Russell Long, Abe Losice, Carlos Maymi, Matt Middleton, David Nicolardi, Sam Nikoomanesh, Harriet Orol, Abraham Putney, Jeremiah Roberts, Mary Ryan, Warren Tong, Evelyn Tuntono, Chris Valtin, Kevin Vasel, and Michele Wilham.  The Office of Credit Ratings appreciates the assistance provided during the examinations by Todd Scharf and Ted Shelkey of the SEC’s Office of Information Technology.