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Statement of Commissioner Daniel M. Gallagher Regarding the Removal of Certain References to Credit Ratings Under the Securities and Exchange Act of 1934 and the Investment Company Act

Commissioner Daniel M. Gallagher

Dec. 27, 2013

Today the Commission took a very important step towards addressing a key cause of the 2008 Financial Crisis. I was very pleased to vote for both of the recent releases removing references to credit ratings issued by nationally recognized statistical rating organizations (NRSROs) from Commission rules, as mandated by Section 939A of the Dodd-Frank Act.  The NRSROs failed miserably in their ratings of asset-backed securities, especially residential mortgage backed securities, in the years leading up to the crisis.  These faulty ratings were a core cause of the financial crisis, and the incorporation of references to credit ratings into Commission rules (as well as those of other federal regulators) exacerbated the problem. Regulators and investors relied on NRSRO ratings to their great detriment, and to the detriment of the U.S. and global markets.  Although I regret how long it took for the Commission to carry out the Congressional mandate to remove such references from our rules, I commend Chair White for appropriately prioritizing reference removal, and I look forward to working with her to complete our Section 939A obligations by removing all remaining references to credit ratings from Commission rules in the new year.

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