SEC Adopts Credit Rating Agency Reform Rules

The SEC adopted new requirements for credit rating agencies to "enhance governance, protect against conflicts of interest, and increase transparency to improve the quality of credit ratings and increase credit rating agency accountability." The new rules and amendments, which implement 14 rulemaking requirements under Dodd-Frank, apply to credit rating agencies registered with the SEC as nationally recognized statistical rating organizations ("NRSROs").

The new requirements for NRSROs address:

• internal controls;
• conflicts of interest;
• the 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 the training, experience and competence of credit analysts.

The requirements provide for an annual certification by the CEO as to the effectiveness of the internal controls and additional certifications to accompany credit ratings attesting that the rating was not influenced by other business activities.

Certain amendments will become effective 60 days after publication in the Federal Register. The amendments that pertain to the annual report on internal controls and the production and disclosure of performance statistics will be effective on January 1, 2015. The January 1, 2015 effective date means that the first internal controls report to be submitted by an NRSRO would cover the fiscal year that ends on or after January 1, 2015 and the first annual certification on Form NRSRO relating to performance statistics will be required for the annual certifications filed after the end of the 2015 calendar year.

Other provisions of the amendments will be effective nine months after publication in the Federal Register to provide time for NRSROs, issuers, underwriters, and providers of third-party due diligence services to prepare for the changes resulting from the new requirements.

See: Text of the Final Rules.