About the Office of Credit Ratings
In July 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"), which, among other things, amended Section 15E of the Securities Exchange Act of 1934 (the "Exchange Act") to enhance the regulation, accountability and transparency of "nationally recognized statistical rating organizations" or "NRSROs." As mandated by the Dodd-Frank Act, the Office of Credit Ratings ("OCR" or the "Office") was created in support of the Commission's mission to protect investors, facilitate capital formation, and maintain fair, orderly, and efficient markets. The Office is charged with administering the rules of the Commission: with respect to the practices of NRSROs in determining credit ratings, for the protection of users of credit ratings and in the public interest; promoting accuracy in credit ratings issued by NRSROs; ensuring that credit ratings are not unduly influenced by conflicts of interest; and helping to ensure that firms provide greater disclosure to investors.
In support of this mission, OCR monitors the activities and conducts examinations of registered NRSROs to assess and promote compliance with statutory and Commission requirements. The Office is located in New York and Washington, D.C. and is staffed with examiners, attorneys, and accountants with expertise in structured finance, corporate finance, municipal finance, financial institutions, insurance companies, and credit rating agencies.
Background Regarding Credit Rating Agencies
Credit rating agencies are organizations that provide an opinion on the creditworthiness of a company or a financial instrument. The NRSROs were recognized as such by the Commission staff through a no-action letter process until 2006, when Congress passed the Credit Rating Agency Reform Act (the "Reform Act") that added Section 15E to the Exchange Act and provided the Commission with the authority to establish a registration and oversight program for credit rating agencies registered as NRSROs. To date, through a series of rulemakings, the Commission has implemented a number of Exchange Act provisions related to NRSROs.
Core Activities of the Office
The establishment of the Office consolidates and enhances the integration of activities that had previously been conducted by various Offices and Divisions. The core activities of OCR include the following:
Monitoring: The monitoring activities are geared towards informing Commission policy and rulemaking and include identifying and analyzing risks, monitoring industry trends, and meeting with NRSRO management to discuss organizational and industry developments. OCR drafts annual reports to Congress addressing adopted and proposed rules, the status of registrants and applicants, and the state of competition, transparency, and conflicts of interest among nationally recognized statistical rating organizations. The Office also conducts ad-hoc research as warranted by industry or credit market conditions and contributes to statutorily mandated studies. In addition, the Office administers and monitors the NRSRO registration process as well as the periodic updates by existing registrants of their Forms NRSRO.
Examinations: The examination activities include conducting legislatively mandated annual, risk-based examinations of all registered NRSROs to assess compliance with federal securities laws and SEC rules. The examinations also serve to help ensure adherence to the NRSROs' internal policies, procedures, and methodologies for determining credit ratings. As a product of this work, OCR drafts an annual public report summarizing the findings of such examinations. The Office also conducts special risk-targeted examinations based on credit market issues and concerns and to follow up on tips, complaints, and NRSRO self-reported incidents. Other examination objectives include promoting compliance, working to ensure that NRSROs conduct their activities with integrity and impartiality, and working to ensure the adoption of best practices within the credit rating industry.
Other Activities: Other activities of the Office include making recommendations with respect to the development and modification of SEC rules and forms; referring, when warranted, potential violations of securities laws to the Division of Enforcement; collaborating with other Offices and Divisions of the Commission to identify risks and leverage knowledge; and, consulting and coordinating with international regulators with respect to non-U.S. based registrants.