Credit rating agencies get SEC seal of approval
22 December 2016 Washington DC
Image: Shutterstock
US credit rating agencies are improving their systems for regulatory compliance and increasing competition, according to the Securities and Exchange Commission (SEC).
Two annual staff reports, one required under the Dodd-Frank Act and one mandated under the 2006 Credit Rating Agency Reform Act, assessed credit rating agencies under SEC oversight as nationally recognised statistical rating organisations (NRSROs).
The first report assessed policies and procedures for determining, surveilling and withdrawing ratings; development and documentation of methods and criteria; and separation of analytical activities from sales and marketing.
It found that findings from previous examinations have been addressed, and that NRSROs are integrating and improving their internal systems and processes to comply with their obligations as regulated entities.
These system improvements include implementing IT systems to increase capacity and accuracy of compliance tasks, and adding personnel and resources for anticipating risk management issues and addressing them early.
NRSROs are also increasing the frequency of audits and other internal tests, the report found.
Thomas Butler, director of the SEC’s office of credit ratings, said: “As a result of our efforts, NRSROs are redoubling their focus on policy and procedure adherence to achieve enhanced transparency, quality, and integrity.”
He added: “The firms’ additional investments in information technology and personnel serve to bolster governance, risk, and compliance functions.”
The second report focused on the state of competition, transparency and conflict of interest at NRSROs.
It found that smaller agencies continue to actively compete with the more established entities, particularly in the asset-backed securities rating category, and that agencies are starting to rate a new type of issuance in esoteric asset-backed securities.
It also noted that two new NRSROs were recently registered in additional rating categories.
SEC chair Mary Jo White said: “Dedicated oversight of credit rating agencies is a critical part of the SEC’s mission.”
She added: “I am pleased that the firms are advancing initiatives to address the staff’s recommendations, including responses to the comprehensive credit rating reforms adopted by the commission in August 2014.”
Two annual staff reports, one required under the Dodd-Frank Act and one mandated under the 2006 Credit Rating Agency Reform Act, assessed credit rating agencies under SEC oversight as nationally recognised statistical rating organisations (NRSROs).
The first report assessed policies and procedures for determining, surveilling and withdrawing ratings; development and documentation of methods and criteria; and separation of analytical activities from sales and marketing.
It found that findings from previous examinations have been addressed, and that NRSROs are integrating and improving their internal systems and processes to comply with their obligations as regulated entities.
These system improvements include implementing IT systems to increase capacity and accuracy of compliance tasks, and adding personnel and resources for anticipating risk management issues and addressing them early.
NRSROs are also increasing the frequency of audits and other internal tests, the report found.
Thomas Butler, director of the SEC’s office of credit ratings, said: “As a result of our efforts, NRSROs are redoubling their focus on policy and procedure adherence to achieve enhanced transparency, quality, and integrity.”
He added: “The firms’ additional investments in information technology and personnel serve to bolster governance, risk, and compliance functions.”
The second report focused on the state of competition, transparency and conflict of interest at NRSROs.
It found that smaller agencies continue to actively compete with the more established entities, particularly in the asset-backed securities rating category, and that agencies are starting to rate a new type of issuance in esoteric asset-backed securities.
It also noted that two new NRSROs were recently registered in additional rating categories.
SEC chair Mary Jo White said: “Dedicated oversight of credit rating agencies is a critical part of the SEC’s mission.”
She added: “I am pleased that the firms are advancing initiatives to address the staff’s recommendations, including responses to the comprehensive credit rating reforms adopted by the commission in August 2014.”
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