On September 17, the Securities and Exchange Commission adopted and proposed rules to strengthen SEC oversight of the 10 credit rating agencies currently registered as Nationally Recognized Statistical Rating Organizations (NRSROs). The purpose of these rule changes is to improve the quality and enhance disclosure of credit ratings, as well as limit systemic reliance on credit ratings in SEC regulations, rules and forms.

Changes adopted by the SEC include rules requiring credit rating agencies to provide greater information on ratings histories, and to require that credit rating agencies provide competitors access to the underlying data for structured finance products so that other rating agencies may offer unsolicited ratings on these products. The SEC also adopted amendments to certain rules and regulations to remove references to NRSRO ratings in SEC rules, using other standards, such as certain liquidity and credit risk thresholds, to measure the quality of securities. Further rule changes to delete credit ratings references in SEC rules were proposed for public comment.

Additionally, the SEC proposed rules requiring issuers to disclose information about scope and limitations of a credit rating and whether the issuer obtained preliminary ratings from other credit rating agencies. This proposal is aimed at increasing public awareness of “ratings shopping.” Other proposed rules included an amendment requiring NRSROs to file annual compliance reports and disclose sources of revenue and potential revenue-related conflicts. The SEC is also seeking public comment on a proposed amendment to subject NRSROs to liability under the Securities Act of 1933 when a rating is used in a registered offering by eliminating a current protection of NRSROs as “experts” in such situations.

The text of the proposed and final rules will be posted on the SEC’s website.

Click here to read the SEC’s press release regarding the adopted and proposed rules regarding credit rating agencies.

Click here to read Chairman Mary Schapiro’s opening remarks regarding such rule changes.

For information on legislation proposed by the U.S. Treasury Department to tighten government oversight of credit rating agencies, click here to read the July 24 edition of Corporate and Financial Weekly Digest.