Concepts in Senator Jack Reed’s “Credit Rating Reform Act of 2009” (3/20/09) The bill makes credit rating agencies more accountable and strengthens SEC’s oversight of NRSROs through enhanced disclosure, improved oversight of conflicts of interest, and greater liability for NRSROs when they ignore fraudulent information or do not conduct thorough due diligence. Accountability of NRSROs • Improves accountability of NRSROs by treating them like investment advisors and auditors, which are subject to private rights of action.
SEC Authority • • Establishes an office in SEC to coordinate activities for regulating NRSROs. Directs the SEC to ensure that NRSRO methodologies follow internal NRSRO guidelines and requirements for accuracy and freedom from conflicts of interest.
Due Diligence Certification • Requires certification if due diligence services are used to ensure that appropriate and comprehensive information was received by the NRSRO for an accurate rating.
Ratings Disclosures • • Requires NRSROs to notify users when model or methodology changes occur that could impact the rating, and to apply the changes to the rating promptly. Requires SEC to establish a form for NRSROs to provide disclosures on ratings, including methodological assumptions, fees paid to the issuer, and factors that could change the rating. Requires NRSROs to provide rating performance information, such as information on the frequency of rating changes over time.
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Conflicts of Interests • • • • Requires NRSROs to have an independent compliance office or officer to manage conflicts of interest and independently review ratings so they are free from conflicts. Requires the SEC to regularly review NRSRO conflict of interest guidelines. Establishes a revolving door policy – 1 year cooling off period for NRSRO staff who leave to work for an issuer. Asks SEC to consider how a new payment structure for NRSROs could improve surveillance and result in more accurate ratings.