SEC Proposes New Rules on Credit Ratings

On May 18 the SEC voted unanimously to propose new rules intended to increase transparency and improve the integrity of credit ratings.  The proposed rules would implement certain provisions of the Dodd-Frank Act and enhance the SEC’s existing rules governing credit ratings and Nationally Recognized Statistical Rating Organizations (NRSROs).

Under the SEC’s proposal, NRSROs would be required to:

• Report on internal controls.
• Protect against conflicts of interest.
• Establish professional standards for credit analysts.
• Publicly provide – along with the publication of the credit rating – disclosure about the credit rating and the methodology used to determine it.
• Enhance their public disclosures about the performance of their credit ratings.

The SEC’s proposal also requires disclosure concerning third-party due diligence reports for asset-backed securities.

Public comments are due 60 days after publication in the Federal Register.