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President Signs Credit Rating Agency Reform Legislation
October 06, 2006
FEI Summary
On Sept. 29, 2006, President Bush signed into law S. 3850, the Credit Rating Agency Reform Act of 2006. The legislation would overhaul the framework for registering and overseeing credit rating agencies. The bill aims to remove the U.S. Securities and Exchange Commission (SEC) from the process of approving certain credit rating agencies as “Nationally Recognized Statistical Rating Organizations” (NRSROs). Instead, under the bill, the SEC would register credit rating agencies that meet a new definition, and would oversee the companies through inspections, examinations, and enforcement.
Among the items that will be listed on an SEC registration by aspiring NRSROs are conflicts of interest; the procedures and methodologies used in determining credit ratings; credit ratings performance measurement statistics; and procedures for protecting non-public information. FEI’s Committee on Corporate Finance (CCF) was an early and forceful advocate for the provision addressing conflicts of interest.
In July, the House of Representatives passed its version of the bill. While the two bills are virtually identical, the Senate bill includes a provision requiring qualified institutional buyers to certify the credibility of a credit rating agency’s ratings. That provision remained in the final bill signed by the President.
For more information, please contact Mark Prysock (mprysock@FinancialExecutives.org), General Counsel, Financial Executives International (FEI).
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