The Securities and Exchange Commission (SEC) voted unanimously to propose new rules and amendments for increasing credit rating transparency and improving their integrity.
The proposed rules would implement certain provisions of the Dodd-Frank Act as well as enhance the SEC’s existing rules governing credit ratings and Nationally Recognized Statistical Rating Organizations (NRSROs).
“In passing the Dodd-Frank Act, Congress noted that credit ratings applied to structured financial products proved inaccurate and contributed significantly to the mismanagement of risks by financial institutions and investors,” SEC Chairman Mary Schapiro said. “Our proposed rules are intended to strengthen the integrity and improve the transparency of credit ratings.”
Under the SEC’s proposal, NRSROs would be required to report on internal controls; protect against conflicts of interest; establish professional standards for credit analysts; publicly provide (together with the publication of the credit rating) disclosure about the credit rating and the methodology used to determine it; and enhance their public disclosures about the performance of their credit ratings.
The government agency’s proposal also requires disclosure on third-party due diligence reports for ABS. Public comments on the SEC’s proposal should be received within 60 days after it is published in the Federal Register.
For a full copy of the proposal, please click this link.