Fitch Ratings announced its plan to address the implementation of an amendment to the Securities and Exchange Commission (SEC) Rule 17g-5 providing for certain disclosures pertaining to all new structured finance credit ratings published by the rating agency.

As Fitch indicated in its March 31 release, the SEC has adopted an amendment to Rule 17g-5
relating to rating agencies registered as Nationally Recognized Statistical Rating Organizations(NRSROs).

The Amendment requires arrangers, which are defined as issuers, sponsors or underwriters in this case, that hire an NRSRO to rate any new structured finance security to offer certain written representations to the NRSRO being hired. This obligates the arrangers to make available to any NRSRO, whether hired by the arranger or not, all information offered to the hired NRSRO both for determining the initial credit rating and for ongoing surveillance. The information must be made available by posting it on a password-protected Web site that is available to all NRSROs.

Fitch, in a press release, talked about the amendment's global application. The agency, along with all of its worldwide offices and subsidiaries, has registered with the SEC as an NRSRO for all of its credit ratings and has used its international credit rating scale.

Because of its NRSRO status, the new SEC rule applies to all of Fitch’s subsidiaries and offices worldwide. The agency, being an NRSRO, cannot rate a new structured finance security using its international credit rating scale, whether issued within or outside of the U.S., unless Fitch receives the specified written representations.

This is why all engagement letters signed and returned by the arranger to the agency on or after June 2, which is the amendment's effective date, with respect to any new structured finance credit ratings to be published by Fitch using its international credit rating scale must contain the representations. This is regardless of whether the structured finance transaction is to take place.

This requirement only applies to new structured finance securities utilizing Fitch’s international credit rating scale. There will be no change to any of Fitch’s practices with respect to engaging Fitch to rate any other form of securities. Since Fitch does not consider covered bond securities to be structured finance securities, Fitch will not require covered bond arrangers to provide Fitch the Representations.

Fitch is continuing to evaluate the application of the Amendment to certain types of structured finance securities; most notably those issued out of existing ABCP conduits.

As indicated in its March 31 release, the rating firm will still conduct a dialogue with the SEC and market participants to ensure the amendment's appropriate application and will make further commentary when appropriate.


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