SEC Highlights Findings from NRSRO 2024 Examinations

In an annual Staff Report for 2024, the SEC Office of Credit Ratings ("OCR") highlighted the results of last year's examinations of Nationally Recognized Statistical Rating Organizations ("NRSROs").

The OCR assessed NRSROs' compliance with federal securities laws and focused on key areas, including competition, transparency and conflicts of interest. OCR’s examination program reviewed the eight areas mandated by statute and highlighted emerging risks, such as developments in the private credit market, commercial real estate trends and the increasing use of private ratings by insurance companies.

Among the findings, which covered specific instances of regulatory failings from large, medium and small sized rating organizations, the OCR highlighted issues related to (i) securities ownership conflicts (resulting in several instances where analysts continued to own securities that they were required to divest); (ii) treatment of confidential information (including instances where independent directors used their personal email accounts to conduct NRSRO business, which included the transmission of nonpublic information, including potentially material nonpublic information); (iii) recordkeeping failures (including failures to retain records to allow for effective after-the-fact review of a rating action); and (iv) methodology failures (including failures to ensure the NRSRO approved methodologies applicable when determining an entity's credit rating).