The Securities and Exchange Commission (SEC) released two reports on Monday showing that nationally-recognized credit rating agencies have continued to improve their rating policies and procedures that were implemented post financial crisis.

The failure of the CRAs and of the ratings they assigned has been widely cited as a major factor contributing to the financial crisis generally and the meltdown in residential mortgage-backeds.  Post financial crisis, the rating agencies initiated and implemented operational changes and enhanced process accountability, controls and governance.   

Monday’s reports show that these improvements have been further integrated into the credit rating agencies’ operations and culture and continue to be enhanced. For example, several NRSROs that previously implemented electronic systems to facilitate steps in the rating process or enhance recordkeeping and monitoring activities continue to evaluate the effectiveness of these systems and implement updates intended to improve their performance.

 “These reports demonstrate the SEC’s vigilant oversight of the credit rating industry,” said Chair Mary Jo White in a press release.  “The staff’s continued efforts are yielding valuable results as we are seeing improvements in the overall compliance cultures at many of the credit rating agencies."

The reports also show the hold on ratings the big three credit rating agencies – Moody’s Investors Service, Standard & Poor’s and Fitch Ratings – had prior to the financial crisis, have loosened and smaller credit rating agencies have made competitive inroads in certain asset classes. Kroll Bond Rating Agency, Morningstar and DBRS fall into the class of smaller rating agencies and are increasingly hired to rate RMBS, CMBS and  ABS transactions.

Just four years ago, Standard & Poor’s and Moody’s Investors Service were the two largest credit rating agencies, with almost 1.2 million and 93,913 ratings, according to a 2011 SEC report.  Together they accounted for 83% of all credit ratings, according to the report. Combined with Fitch Ratings, the three accounted for more than 96% of all outstanding credit ratings.

Monday’s reports are an annual examination of each ratings agency as required by the 2010 Dodd-Frank Act, which the SEC began conducting since 2010. 

The reports examine the state of competition, transparency, and conflicts of interest at rating agencies. 

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