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Regulation and Compliance > Federal Regulation > SEC

SEC Proposes Rating Agency Rule Changes

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The U.S. Securities and Exchange Commission (SEC) has proposed new regulations that could change the way rating agencies do business.

Members today voted 5-0 to expose the 518-page rating agency regulations draft for a 60-day public comment period.

The SEC staff developed the draft to implement the rating agency provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

If adopted as written, the proposed regulations would apply to the major “nationally recognized statistical rating organizations” (NRSROs). The new regulations would require rating agencies to change the methods they use to determine credit ratings, take steps to address potential conflicts of interest, and periodically test credit analysts’ knowledge of credit rating procedures.

A rating agency also would have to:

  • Exclude sales people from participating in the rating process.
  • Re-rate companies if former employees were hired by the companies that they had helped rate.
  • File an annual report assessing the effectiveness of the internal controls governing credit rating determinations.
  • Publish more information about the assumptions and methods they use to assign ratings, along with reports showing how ratings had changed over times and whether the securities or companies rated had later defaulted.

Another section of the draft would affect ratings of asset-backed securities. In that section, the SEC asks whether insurance-linked securities should be classified as insurance companies or as issuers of asset-backed securities.

SEC Chairman Mary Schapiro said the new rules “are intended to help investor and other users of credit ratings to better understand and assess the ratings.”

Republican members of the SEC said they likely would push for changes in the final version of the regulation.

Kathleen Casey, one of the Republican commissioners, said she believes the proposed regulations could be “life threatening” to smaller rating agencies.

The credit analyst testing requirement is an example of a provision that could be burdensome, Casey said.

Other rating agency coverage from National Underwriter Life & Health:


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