By Cydney Posner

The SEC staff today issued a report summarizing its observations and concerns arising from the examinations of ten registered credit rating agencies ("NRSROs"). These examinations were required by Dodd-Frank, which imposed new reporting, disclosure and examination requirements to enhance the regulation and oversight of NRSROs, including an annual examination and report by the SEC staff.  The imposition, under Dodd-Frank, of SEC oversight of NRSROs was a consequence of the widely held view that the credit rating agencies were key malefactors in the 2008 financial crisis. Here is a link to a copy of the report.

Although some changes have been implemented by the credit rating agencies, the staff still identified a number of concerns, including "apparent failures in some instances to follow ratings methodologies and procedures, to make timely and accurate disclosures, to establish effective internal control structures for the rating process and to adequately manage conflicts of interest." The staff made various recommendations to address the issues identified and reports that some have already been implemented. In a 2008 report, the staff had raised concerns about the sufficiency of resources devoted to ratings and surveillance, adequacy of disclosures, documentation of the ratings process and management of conflicts of interest in connection with ratings of subprime residential mortgage-backed securities and collateralized debt obligations. This report concludes that each of the three larger NRSROs appears to have devoted resources and effort to responding to those concerns and recommendations.

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