The U.S. House of Representatives voted last Wednesday to reform the credit ratings industry. Observers in the asset securitization industry responded with a mixture of relief, dismay, and by setting up a potentially bitter fight to bring changes to a previously untouched segment of the financial services industry.
The Credit Rating Agency Duopoly Relief Act of 2006 sets out to improve competition, transparency and accountability among credit rating agencies. In short, the bill removes the Securities and Exchange Commission (SEC) from the process involved in approving certain rating agencies as nationally recognized statistical rating organizations (NRSROs), by replacing its current process for NRSRO approval with a more thorough and transparent registration process. It proposes stringent requirements to which rating agencies must adhere if they want to attain NRSRO status, and proposes that they be subject to SEC examinations and enforcement actions.