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Regulation and Compliance > Federal Regulation > SEC

SEC Rolls Out Credit Rating Agency Rule

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The U.S. Securities and Exchange Commission is about to implement new regulations that could increase the number of companies assessing whether companies can pay insurance claims, make bond payments and meet other obligations.

The SEC recently posted a copy of the final version of the new credit rating agency regulations on its Web site.

The final rule, which will create a new system for registering “nationally recognized statistical rating organizations,” implements the federal Credit Rating Agency Reform Act of 2006:

Some sections of the new final rule will to take effect June 18, and some will take effect June 26.

The SEC has been using a complicated, case-by-case system to register NRSROs. In addition to Standard & Poor’s Ratings Service, New York, and Moody’s Investors Service, New York, the SEC has recognized only 4 other NRSROs.

Once the new rules take effect, the number of NRSROs could increase to about 30, SEC officials estimate in the preamble to the proposed regulation.

The SEC released the proposed rules in September 2006.

SEC officials responded to comments on the proposed rules by making a number of significant changes.

The final rule, for example, will, like the proposed the rule, require NRSROs to comply with a statutory requirement to show that they make their ratings available to the public for free, or for a “reasonable fee.”

The new rating agency reform act does not define the term “reasonable fee.”

SEC officials asked in the proposed rule for comments about how to define the term.

The SEC has decided to put off defining the term in the final rule to gain experience on the issue, officials write in the preamble to the final rule.

SEC officials also decided against establishing rules for standard inputs, standard time horizons and standard “metrics” for creating NRSRO performance measurement statistics.

“A number of commenters opposed the use of standardized measures for several reasons, including that such measures would be impractical because credit rating agencies use different methodologies to determine credit ratings and different definitions of default,” SEC officials write. “In light of the varying approaches cited in the comments, the commission is not prepared to prescribe standard metrics at this time.”

In the original proposed rules, SEC officials asked for the NRSROs to provide information about the education and employment history of each credit analyst and credit analyst supervisor.

In the final rule, officials are requiring only that the NRSRO provide the number of analysts and supervisors, along with a general description of the minimum qualifications for the analysts and supervisors.

The NRSROs still will have to report median credit analyst compensation, but only to the SEC, not to the public, officials write.

A copy of the final NRSRO rule is on the Web


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