Speech by SEC Commissioner:
Comments on Final Rules Regarding Oversight of Credit Rating Agencies as Nationally Recognized Statistical Rating Agencies
Commissioner Paul S. Atkins
U.S. Securities and Exchange Commission
May 23, 2007
Thank you, Mr. Chairman. And thank you to the staff for all of your work. I am very pleased that we are finally able to promulgate rules that provide transparency and I hope consistency and accountability to the NRSRO designation process. Hopefully, with the adoption of these rules, the black eye that the SEC has borne for far too long because of the opaque NRSRO designation "process" will begin to heal. It is unfortunate that Congress had to act for the SEC to finally get it right.
I know that the language of the release and rules are still not final, and I look forward to taking a hard look at last night's version and finalizing it with the staff before it is published in the federal register.
Now I have a few questions:
- Erik Sirri: are you confident that the NRSRO rules — including Form NRSRO — are "narrowly tailored" as required by the statute? And, will it remain narrowly tailored? I see a lot of references to "further analysis" of issues before we take action — I assume this will be full Commission action and not action taken by delegated authority?
- What, if any, representations must a credit agency make in its application about compliance with IOSCO standards? Why would there be any reference to IOSCO standards, which are not subject to the Administrative Procedure Act, in SEC rules?
- When will a Form NRSRO be deemed "complete?" Is it complete when all the blocks are filled in and it is signed, or is there a qualitative review of the information before it is deemed complete? Who will arbitrate disputes between the staff and applicants regarding the completeness of the form?
- Could you explain exactly what policies and procedures for determining ratings the credit rating agencies will have to disclose, and what the staff will look for to determine if the procedures have been adequately disclosed? Doesn’t this requirement call for the staff to make a subjective determination—exactly what Congress did not want the staff to do?
- What representations will a QIB have to make when they send a certification on behalf of a rating agency? Can you explain what standard the QIB must meet to show that they "use" the ratings?
- I see in the recordkeeping rules that we have excluded "drafts" from certain required books and records. Are there any recordkeeping requirements that mandate drafts be kept by the credit rating agency?
- I see that — per the statutory requirement for disclosure of organizational information — we are requiring very detailed organizational charts. We are requiring the charts to reflect "material affiliates," but we do not define that term. Why not? Also, I see we are using our ancillary statutory authority to require a chart reflecting the reporting lines of the credit rating agency’s compliance officer. What is the purpose of this requirement? Are we, in effect, pushing credit rating agencies to not have compliance people report to business managers?
- What are the requirements for auditors of credit rating agency financial statements?