On November 16, 2011, the Securities and Exchange Commission
("SEC") issued an order extending the temporary
exemption for rating agencies from the requirements for Rule 17g-5
for certain non-U.S. transactions for a further one-year period,
expiring December 2, 2012.
By way of background, Rule 17g-5 is a series of rules designed
to deal with conflicts of interest affecting credit rating
agencies. A rating agency being hired by the issuer or arranger to
determine a credit rating for a structured finance product is such
a conflict of interest. It is also the normal, if not universal,
circumstance for any issuance of a rated structured finance
product. Given that there will be a conflict of interest, Rule
17g-5(a)(3) requires that the retained rating agency must provide
to other rating agencies access to an internet website containing
all the information provided to the retained rating agency in
issuing its rating. It was thought that making the information
supporting a credit rating available to other rating agencies would
both keep the retained rating agency more diligent and encourage
additional rating agencies to issue ratings on the structured
In the comment period before these new rules became effective on
June 2, 2010, serious concerns arose about the extra-territorial
affect of these provisions. Any rating agency active in the United
States would apparently have to comply with these rules for all
structured finance products which it rates whether or not there was
any connection between the rated transaction and the United States.
In effect, it would apply to all "Canadian" transactions
because all rating agencies active in Canada are also active in the
United Sates. In response to those concerns, the SEC exempted
rating agencies from complying with 17g-5(a)(3) in respect of
transactions where the issuer was not a U.S. person and where the
rating agency had a reasonable basis to conclude that the
structured finance product would not be offered and sold in the
United States. The initial exemption order was available until
December 2, 2010. It was later extended until December 2, 2011 and
now, pursuant to this most recent order of the SEC, to December 2,
The most recent extension is also framed as a request for
comment. While a frequent comment is that this exemption for
non-U.S. transactions should be made permanent, apparently the SEC
is seeking further comment on the issue.
Peter Milligan is Chair of the Banking &
Financial Services Practice Group.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).