In concert with its final ABS-disclosure rules (see Client Report ABS33), the SEC today also finalized an array of requirements mandated by Dodd-Frank for credit rating agencies registered as nationally recognized statistical rating organizations (NRSROs). Approved by a 3-2 vote, the new standards put NRSROs under a wide array of restrictions designed to improve rating transparency, bar conflicts, and improve accountability. Democrats supported the standards, although Commissioner Aguilar pressed for continued attention to conflicts that he believes inevitably result when issuers pay for ratings. Republicans strongly opposed the new conflict standards on grounds of subjectivity. It remains to be seen how the new approach will change the ratings that, despite regulatory efforts around the world, still drive market pricing, collateral eligibility, and many other critical market factors. It is possible that re-ratings, including downgrades, will be less common due to the new standards applied to them, as well as that overall ratings will be skewed to the most conservative possible one to avoid subsequent regulatory or investor allegations. New CEO-attestation requirements also create greater legal and reputational risk that could make AAAs even harder to get. This report analyzes today’s meeting.
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