The Securities and Exchange Commission (SEC) published its annual report on Nationally Recognized Statistical Rating Organizations (NRSROs), or credit rating agencies.
The report, produced by the SEC’s Office of Credit Ratings (OCR), summarized the findings of the NRSRO examinations and discussed the state of competition, transparency, and conflicts of interest among NRSROs.
“Providing effective oversight of credit ratings used by market participants is a critical component of the SEC’s mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation,” SEC Acting Chairman Mark Uyeda said. “The report, which is mandated by statute, reflects the observations, analysis, and expertise of SEC staff in overseeing credit rating agencies.”
The NRSRO examinations reviewed several areas, including:
• The process by which NRSROs determine whether their methodologies are appropriately designed to reflect their view of relevant credit risks as conditions evolve;
• Surveillance practices of NRSROs to assess compliance with statutory and rule requirements, such as the requirement to have an effective internal control structure;
• Commercial real estate related rating activity to assess NRSRO adherence to rating methodologies and surveillance requirements; and
• Securities ownership policies for NRSRO employees and directors to assess whether such policies are reasonably designed to address and manage the related potential conflicts of interest.
“Our examinations cover the eight statutory review areas while focusing on risks unique to the industry and each firm,” Lori Price, director of the SEC’s Office of Credit Ratings, said. “We stay informed of market trends and developments throughout the year and publish a summary of our work in the annual report on NRSROs.”
In addition to publishing the annual report for public consumption, OCR provides its examination findings to Congress.