On November 21, 2013, the SEC’s Office of Credit Ratings submitted its Credit Rating Independence Study to Congress as required by the Dodd-Frank Act. The Dodd-Frank Act requires the study “to evaluate the management of conflicts of interest raised by a nationally recognized statistical rating organization (“NRSRO”) providing other services, such as risk management advisory services, ancillary assistance, or consulting services, and the potential impact of rules prohibiting an NRSRO that provides a rating to an issuer from providing other services to the issuer.” The Chair of the SEC also must report the results of the study and provide any recommended changes designed to improve the ratings to Congress.
The study lists the 10 current NRSROs and outlines different regulatory approaches to ancillary services provided by the rating agencies. In addition, the report discusses the potential conflicts that can be presented when rating agencies provide other services to rated companies as well as examples of policies and procedures that are designed to manage those conflicts.
The study provides an update on policy and procedures deficiencies that had been identified during NRSRO examinations, with further updates to be provided in a report on the current year’s examinations. The study determined that, despite some NRSRO deficiencies in managing conflicts, there was not sufficient evidence to suggest that “NRSROs have generally been unable to manage conflicts through existing policies and procedures.” The study concluded that the Office of Credit Ratings would not recommend that the Commission prohibit an NRSRO from providing ancillary services to companies it rates at the current time.