SEC Identifies Compliance Deficiencies at Credit Agencies

In its annual Staff Report to Congress, the SEC Office of Credit Ratings ("OCR") identified new and ongoing compliance deficiencies at nationally recognized statistical ratings organizations ("NRSROs").

In general, OCR focused on the state of competition, transparency and conflicts of interest. OCR reviewed areas mandated by statute, as well as (i) rating surveillance practices, (ii) the impact of the COVID-19 pandemic on commercial real estate markets, (iii) recordkeeping and the preservation of "off-channel" business communications, (iv) risks and conflicts of interest related to ownership of certain securities, (v) ESG products and (vi) developments related to China-based ratings agencies.

OCR identified compliance deficiencies relating to, among other areas, (i) preventing misuse of material nonpublic information, (ii) record retention and response to SEC requests for information, (iii) credit rating determinations and (iv) conflicts of interest.

OCR reported that NRSROs generally implemented all of the remediation efforts recommended in the previous year's report (see previous coverage), with one exception as to a small rating agency, and another where OCR could not assess remediation. OCR also identified instances where an NRSRO did not comply with the conditions of an SEC enforcement order and recommended that the NRSRO immediately remediate the issues. Additionally, OCR said that it received one application for initial NRSRO registration in the insurance companies ratings class, which was granted and that no existing NRSROs filed applications for additional ratings categories.