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SEC Approves NRSRO

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The U.S. Securities and Exchange Commission has registered LACE Financial Corp. as a national recognized statistical rating organization.

LACE, Frederick, Md., has received approval to act as an NRSRO for insurance companies as well as for other types of issuers, such as banks and corporate debt issuers.

Congress included a provision creating the NRSRO designation program in the Credit Rating Agency Reform Act of 2006, in an effort to encourage major rating agencies to abide by requirements governing matters such as conflict-of-interest disclosure and disclosure of rating methodology.

The NRSRO rules normally prohibit an NRSRO from getting more than 10% of its revenue from a single client.

In 2007, “LACE maintained credit ratings on asset-backed securities solicited by a person that provided LACE with 10% or more of its total revenues for that year,” SEC officials note in a discussion of LACE’s NRSRO registration application.

LACE argued that enforcing the restriction in this case would hinder the ability of LACE, which is a small entity, to grow its asset-backed securities rating business.

“The commission notes that LACE has stated that it expects that the percentage of total revenue provided by the [asset-backed securities] client will decrease,” officials write in the discussion of the registration order.

In addition, letting LACE act as an NRSRO will help achieve the congressional goal of increasing competition in the ratings industry, officials write.

The other NRSROs are A.M. Best Company Inc., Oldwick, N.J.; DBRS Ltd.; Toronto; Egan-Jones Rating Company Inc., Haverford, Pa.; Fitch Inc., London; Japan Credit Rating Agency Ltd., Tokyo; Moody’s Investors Service Inc., New York; Rating and Investment Information Inc., Tokyo; and Standard & Poor’s Ratings Services, New York.


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