SEC Issues Annual Staff Reports on Credit Rating Agencies
The SEC's 2013 annual report on credit rating agencies found no fraud or enforcement actions but identified systemic weaknesses in conflict-of-interest management and methodology oversight at some NRSROs, while noting improved compliance and increased market competition with new entrants like HR Ratings de México.
The SEC's 2013 examination of the 10 registered NRSROs revealed ongoing deficiencies in procedures for ratings under review and insufficient oversight of new rating methodologies, allowing business interests to potentially influence analytical independence. While compliance improved through enhanced internal controls, training, and infrastructure investments—addressing prior SEC recommendations—no financial penalties or enforcement actions were taken. The annual report to Congress also noted the industry's growing competitiveness, with the number of NRSROs rising to 10, including HR Ratings de México, and increased transparency through unsolicited commentary on competitors' ratings.
The SEC's 2013 annual reports on nationally recognized statistical rating organizations (NRSROs) detailed regulatory findings from examinations of all 10 registered agencies, with no allegations of fraud, enforcement actions, or financial penalties. The staff identified persistent weaknesses, including inadequate procedures for ratings under review and insufficient oversight in developing new rating methodologies, which risked compromising independence from business and market share pressures. However, improvements were noted, such as increased investment in compliance systems, enhanced training for employees, and stronger internal controls—responses to prior SEC recommendations. The number of NRSROs grew to 10 following the registration of HR Ratings de México in November 2012, with some smaller agencies gaining significant market share in niche asset-backed securities. Transparency also increased as NRSROs began issuing unsolicited commentary on ratings published by competitors. The reports, mandated by the Dodd-Frank Act and the 2006 Credit Rating Agency Reform Act, emphasized the evolving nature of the industry and the need for continued regulatory vigilance. The SEC concluded that oversight was improving but urged sustained attention to conflict-of-interest management and methodological integrity across the sector.
Exhibits & Attached Documents (2)
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- person annual staff report
- person improvements among nrsros
- person nrsros lacked comprehensive procedures
- agency sec to examine each nrsro
- agency Securities and Exchange Commission
- person significant market share
- person smaller nrsros
- person thomas j. butler
- person unsolicited commentary
- SEC Issued Annual Staff Report
- SEC Submitted Annual Staff Report to Congress
- Thomas J. Butler Said The Two Reports Reflect An Evolving Industry
- 2010 Dodd-Frank Act Requires SEC to Examine Each NRSRO
- Report Discusses Staff Findings and Recommendations
- Staff Found NRSROs Lacked Comprehensive Procedures
- Staff Found Oversight Was Not Sufficient
- 2013 Examination Report Highlights Improvements Among NRSROs
- 2006 Credit Rating Agency Reform Act Requires Annual Report to Congress
- Annual Report to Congress Identifies Applicants for NRSRO Registration
- Number of NRSROs Rose to 10
- HR Ratings De México, S.A. de C.V. Registered in November 2012
- Smaller NRSROs Gained Significant Market Share
- NRSROs Issuing Unsolicited Commentary
The Securities and Exchange Commission today issued its annual staff report on the findings of examinations of credit rating agencies registered as nationally recognized statistical rating organizations (NRSROs). The agency also submitted an annual staff report on NRSROs to Congress. “The two reports reflect an evolving industry,” said Thomas J. Butler, director of the SEC’s Office of Credit Ratings. “The examination report shows that the SEC’s vigilant oversight is improving compliance at NRSROs, while the annual report to Congress depicts an industry that is growing more competitive and transparent.” The 2010 Dodd-Frank Act requires the SEC to examine each NRSRO at least annually and issue a report summarizing key findings of the examinations. The report discusses the staff’s findings and recommendations for each of the 10 NRSROs. Among the areas examined are whether each NRSRO conducts business in accordance with its policies, procedures, and methodologies as well as how an NRSRO manages conflicts of interest and whether it maintains effective internal controls. The report noted, for instance, that the staff found one or more NRSROs lacked comprehensive procedures governing ratings placed under review. The staff also found that oversight of the process for developing new rating methodologies and criteria was not sufficient at one or more NRSROs to ensure independence from business and market share considerations. The 2013 examination report highlights certain improvements among NRSROs, such as increased investment in compliance systems and infrastructure along with enhancements in compliance training for both analytical and non-analytical employees. These improvements address recommendations that the staff made to NRSROs on prior examinations. The annual report to Congress, which is required by the 2006 Credit Rating Agency Reform Act, identifies the applicants for NRSRO registration, actions taken on the applications, and the SEC’s views on the state of competition, transparency, and conflicts of interest among NRSROs. Observations from the 2013 annual report include the following: The number of NRSROs rose to 10 with HR Ratings de México, S.A. de C.V., registering in November 2012. Some smaller NRSROs have gained significant market share in ratings for certain types of asset-backed securities. Transparency is increasing due to the NRSROs issuing unsolicited commentary on ratings issued by other NRSROs. The following SEC staff made significant contributions to the examinations and reports: Abe Losice, Michele Wilham, Kenneth Godwin, Natalia Kaden, Harriet Orol, Jacob Prudhomme, Diane Audino, Kristin Costello, Scott Davey, Shawn Davis, Michael Gerity, Julia Kiel, Joanne Legomsky, Russell Long, Carlos Maymi, David Nicolardi, Sam Nikoomanesh, Joseph Opron, Abraham Putney, Mary Ryan, Warren Tong, Evelyn Tuntono, and Kevin Vasel.
The Securities and Exchange Commission today issued its annual staff report on the findings of examinations of credit rating agencies registered as nationally recognized statistical rating organizations (NRSROs). The agency also submitted an annual staff report on NRSROs to Congress. “The two reports reflect an evolving industry,” said Thomas J. Butler, director of the SEC’s Office of Credit Ratings. “The examination report shows that the SEC’s vigilant oversight is improving compliance at NRSROs, while the annual report to Congress depicts an industry that is growing more competitive and transparent.” The 2010 Dodd-Frank Act requires the SEC to examine each NRSRO at least annually and issue a report summarizing key findings of the examinations. The report discusses the staff’s findings and recommendations for each of the 10 NRSROs. Among the areas examined are whether each NRSRO conducts business in accordance with its policies, procedures, and methodologies as well as how an NRSRO manages conflicts of interest and whether it maintains effective internal controls. The report noted, for instance, that the staff found one or more NRSROs lacked comprehensive procedures governing ratings placed under review. The staff also found that oversight of the process for developing new rating methodologies and criteria was not sufficient at one or more NRSROs to ensure independence from business and market share considerations. The 2013 examination report highlights certain improvements among NRSROs, such as increased investment in compliance systems and infrastructure along with enhancements in compliance training for both analytical and non-analytical employees. These improvements address recommendations that the staff made to NRSROs on prior examinations. The annual report to Congress, which is required by the 2006 Credit Rating Agency Reform Act, identifies the applicants for NRSRO registration, actions taken on the applications, and the SEC’s views on the state of competition, transparency, and conflicts of interest among NRSROs. Observations from the 2013 annual report include the following: The number of NRSROs rose to 10 with HR Ratings de México, S.A. de C.V., registering in November 2012. Some smaller NRSROs have gained significant market share in ratings for certain types of asset-backed securities. Transparency is increasing due to the NRSROs issuing unsolicited commentary on ratings issued by other NRSROs. The following SEC staff made significant contributions to the examinations and reports: Abe Losice, Michele Wilham, Kenneth Godwin, Natalia Kaden, Harriet Orol, Jacob Prudhomme, Diane Audino, Kristin Costello, Scott Davey, Shawn Davis, Michael Gerity, Julia Kiel, Joanne Legomsky, Russell Long, Carlos Maymi, David Nicolardi, Sam Nikoomanesh, Joseph Opron, Abraham Putney, Mary Ryan, Warren Tong, Evelyn Tuntono, and Kevin Vasel.