On December 3, the Securities and Exchange Commission approved a number of final rule changes and issued new proposed rule changes based on their 10-month examination of three major credit rating agencies to increase transparency, disclosure and accountability at nationally recognized statistical rating organizations (NRSROs). The final amendments include the addition of three new record-keeping requirements and new conflicts prohibitions including rules that:  

  • require NRSROs to make and retain records of all rating actions related to a current rating from the initial rating to the current rating;
  • require NRSROs to keep a record of the rationale for any material difference between the credit rating implied by a quantitative model and the final credit rating issued for a structured finance product if a quantitative model is a substantial component of the credit rating process for such product;  
  • require NRSROs to retain records of any complaints regarding the performance of a credit analyst in determining, maintaining, monitoring, changing or withdrawing a credit rating;  
  • prohibit an NRSRO from issuing a credit rating with respect to an obligor or security where the NRSRO or an affiliate made recommendations to the obligor or the issuer, underwriter or sponsor of the security about the corporate or legal structure, assets, liabilities or activities of the obligor or issuer of the security;  
  • prohibit a person within an NRSRO who has responsibility for participating in determining credit ratings or for developing or approving procedures or methodologies used for determining credit ratings from participating in any fee discussions, negotiations or arrangements.

 The SEC’s proposed rule changes include a rule that would prohibit an NRSRO from issuing a rating for a structured finance product paid for by the product’s issuer, sponsor or underwriter unless the information about the product provided to the NRSRO to determine the rating and, thereafter, monitor the rating is made available to other NRSROs, and a rule that would that require even more stringent disclosure of historical ratings data.