In implementing Sections 932, 936 and 938(a) of the Dodd-Frank Act, the SEC voted unanimously on Wednesday to propose a 517-page package of rules and amendments to the 1934 Securities Exchange Act related to the practices of nationally recognized statistical rating organizations (NRSROs). The proposal is intended to improve the transparency and integrity of credit ratings issued by NRSROs, which currently number ten in total. Specifically, the proposed rules would require NRSROs to submit annual reports on internal controls, augment training for credit analysts, consistently apply rating symbols, prevent conflicts of interest with regard to sales and marketing and provide standardized disclosures on the performance of credit ratings. The rules would also require a third party due diligence providers for asset-backed securities (ABS) to provide written certification to NRSROs that rate the ABS. In a speech about NRSRO regulation, SEC Chairman Mary Schapiro strongly encouraged stakeholders to comment on the proposed rules so as to assist the SEC in “formulating sound rules and regulations.”
The Commission also announced that it would be voting on the revisions to its Whistleblower rules as mandated by Dodd-Frank at its next meeting, which will take place next week on the 25th of May. These rules, which could effectively incentivize corporate whistleblowers to bypass internal compliance mechanisms, should be of grave concern to any public company.