SEC Releases Staff Report on Ratings Organizations

The Securities and Exchange Commission released a report that provides a summary of the staff’s examinations of Nationally Recognized Statistical Ratings Organizations (NRSROs) and discusses the state of competition, transparency, and conflicts of interest among NRSROs. The report includes a discussion of how NRSROs are factoring in the following issues into their assessments:

• Consideration of ESG factors and products;
• COVID-19 related risk areas;

• Activities related to collateralized loan obligations, commercial real estate, and consumer asset-backed securities;
• Adherence to policies, procedures, and methodologies with respect to rating low-investment grade corporate securities; and,
• Controls, policies, and procedures for ratings of municipal securities.

The report notes that NRSROs are increasing their offerings of ESG-related products and services. The report highlights a few areas of potential concern surrounding these services including not adhering to their established methodologies or policies and procedures, inconsistent application of ESG factors, and the adequate disclosure of the use of ESG factors applied in rating actions. The SEC plans to continue to monitor these product offerings.