The SEC Office of Credit Ratings ("OCR") found, among other things, that nationally recognized statistical rating organizations ("NRSROs") continue to demonstrate improvements in compliance amid greater competition in 2016. The SEC published its findings in two staff reports.
The 2016 Annual Report on NRSROs, required under Section 6 of the 2006 Credit Rating Agency Reform Act, discussed the states of competition, transparency and conflicts of interest at NRSROs. The report summarized the activities of the OCR. It noted that two NRSROs registered in the past year in additional ratings categories and that smaller NRSROs are continuing to "actively compete" with the established rating agencies.
The 2016 Summary Report of Examinations of Each NRSRO, required by the Dodd-Frank Act and issued pursuant to SEA Section 15E(p)(3)(C), focused on: (i) new and amended SEC rules concerning NRSROs; (ii) information technology policies and procedures; (iii) quantitative models used in the rating process; and (iv) surveillance of outside ratings. Citing "[e]xamples of improvements," the report stated that NRSROs:
- implemented software and computer systems to increase the automation, efficiency, and capacity of compliance-related tasks and reduce the potential for human error;
- increased resources and commitment to documentation of their operations;
- conducted audits and other testing to assess policy and procedure adherence and applicable regulation compliance;
- revised their practices related to performance evaluation, compensation and promotion to consider an "employee's adherence to its rating policies and procedures, code of conduct, and compliance rules"; and
- increased their staff awareness and commitment to address risk-management issues.
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