Dodd-Frank focuses on the structure of credit rating
agencies, requiring revisions and imposing other requirements in an effort to
resolve the conflicts of interest and other difficulties many believe were at
the center of the market crisis. The article on Monday focused on the new SEC office which will
deal with NRSROs and the structural issues.
One key aspect of the new requirements deals with the
revolving door issue and imposes certain disclosure requirements to try and
solve this problem as described in Part I. Those provisions will be
supplemented by SEC rules. The Commission is required to establish rules with a
look back requirement focused on when an employee of an entity subject to an
NRSRO rating was employed by the agency when that person participated in
determining ratings for the entity within one year.
While the Act deals with certain specific structure and
operations issues of NRSROs, the SEC is required to write rules addressing
others. These include:
The Commission is authorized by the Act to suspend or
revoke the registration of any NRSRO with respect to a particular class of
securities if it determines that the organization lacks adequate financial or
managerial resources to consistently produce ratings with integrity. In making
this determination, after notice and a hearing, the Commission must consider if
the rating agency failed to produce accurate ratings over a sustained period of
Several sections of the Act address the potential
liability or litigation defenses of NRSROs. These include:
Finally, Dodd-Frank requires the preparation of studies
and reports which may impact the future regulation of credit rating agencies.
For more cutting edge commentary on
developing securities issues, visit SEC Actions, a
blog by Thomas Gorman.