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SEC Announces Rules for NRSRO-Registered Credit Rating Agencies

Affecting credit rating agencies registered with the Securities and Exchange Commission (“SEC”) as nationally recognized statistical rating organizations (“NRSROs”), the SEC has adopted new amendments that improve governance, defend against conflicts of interest, enhance credit ratings quality and provide increased accountability. The SEC-issued requirements also address:

  • internal controls;
  • reporting of credit rating performance data;
  • procedures that protect rating methodologies;
  • disclosures to encourage credit ratings transparency; and
  • standards for the training, experience and proficiency of credit analysts.

Also adopted by the SEC are requirements affecting issuers, underwriters, and third-party due diligence services. The requirements will support clear findings and conclusions of third-party due diligence concerning asset-backed securities.

While certain amendments go into effect 60 days after being published in the Federal Register, amendments pertaining to internal controls’ annual reports, and the creation and reporting of performance statistics are effective January 1, 2015. In addition, the following amendments will go into effect nine months after being published in the Federal Register:

(a) Prohibiting the sales and marketing conflict;

(b) Addressing look-back reviews to decide if a credit analyst’s likelihood of future employment affected a credit rating;

(c) Requiring the disclosure of rating histories;

(d) Addressing rating methodologies;

(e) Requiring the form and certification to accompany credit ratings;

(f) Addressing issuer and underwriter disclosure of third-party due diligence findings;

(g) Addressing third-party due diligence provider certification;

(h) Addressing NRSRO standards of training, experience, and proficiency; and

(i) Addressing universal rating symbols.

The nine-month period gives NRSROs, issuers, underwriters and third-party due diligence service providers time to prepare for the new requirements. For the press release on the new rules and amendments, visit the SEC’s website. Cherry Bekaert’s SEC Audit services also include professionals that can help with the new amendments.

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