Common And Preferred Stock Fraud, Misrepresentation And Mismanagement FINRA Arbitration And Litigation Attorney, Russell L. Forkey, Esq.
The purpose of this post is to provide the reader with general information relating to the below mentioned rating organizations. This post is not designed to be complete in all material respects. It is being provided for educational purposes only. Thus, it should not be relied upon as providing any legal or investment advice. If you have any questions relative to its content, you should contact a qualified professional.
There are a number of National Rating Statistical Rating Organization (NRSRO) that are subject to Securities and Exchange Commission (SEC) oversight. These NRSRO companies are:
- A.M. Best Company, Inc. (“A.M. Best”)
- DBRS Inc. (“DBRS”)
- Egan-Jones Rating Company (“Egan-Jones”)
- Fitch, Inc. (“Fitch”)
- Japan Credit Rating Agency, Ltd. (“JCR”)
- Kroll Bond Rating Agency (“Kroll”)
- Moody’s Investors Service, Inc. (“Moody’s”)
- Morningstar Credit Ratings, LLC (“Morningstar”)
- Rating and Investment Information, Inc. (“R&I”)
- Standard & Poor’s Ratings Services (“S&P”)
In July 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which, among other things, amended Section 15E to enhance the regulation and oversight of NRSROs by imposing new reporting, disclosure, and examination requirements. The Dodd-Frank Act directs the Commission to adopt rules to implement a number of provisions related to NRSROs. To this end, the Commission adopted new Rule 17g-7 and has proposed new rules to implement certain provisions of the Dodd-Frank Act concerning the following areas:
- Filing annual reports on internal controls;
- Addressing conflicts of interest with respect to sales and marketing concerns;
- Conducting “look back” reviews of ratings in which former NRSRO employees participated to determine whether employment opportunities with a rated entity, issuer, underwriter, or sponsor influenced the rating;
- Disclosing information relating to initial credit ratings and subsequent changes to credit ratings to track the performance of an NRSRO’s credit ratings;
- Requiring an NRSRO to have certain policies and procedures governing the way an NRSRO determines credit ratings;
- Publishing a standard form with each credit rating disclosing the assumptions underlying the methodology used to determine the credit rating;
- Disclosing information concerning third-party due diligence reports for asset-backed securities;
- Establishing professional standards for training credit rating analysts;
- Requiring the consistent application of rating symbols and definitions.
Section 15E(p)(3)(A), added by the Dodd-Frank Act, requires the SEC Staff to conduct an examination of each NRSRO at least annually. Under Section 15E(p)(3)(B), each examination must include a review of the following:
1. Whether the NRSRO conducts business in accordance with its policies, procedures, and rating methodologies
2. The management of conflicts of interest by the NRSRO
3. Implementation of ethics policies by the NRSRO
4. The internal supervisory controls of the NRSRO
5. The governance of the NRSRO
6. The activities of the designated compliance officer of the NRSRO
7. The processing of complaints by the NRSRO
8. The NRSRO’s policies governing the post-employment activities of former staff of the NRSRO
If the reader follows the highlighted link, the reader will be able to review the September, 2011 staff report.