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SEC Proposes Rules to Increase Transparency and Improve Integrity of Credit Ratings

Fact Sheet: “The Securities and Exchange Commission [May 18, 2011] voted unanimously to propose new rules and amendments intended to increase transparency and improve the integrity of credit ratings. The proposed rules would implement certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and enhance the SEC’s existing rules governing credit ratings and Nationally Recognized Statistical Rating Organizations (NRSROs). “In passing the Dodd-Frank Act, Congress noted that credit ratings applied to structured financial products proved inaccurate and contributed significantly to the mismanagement of risks by financial institutions and investors,” said SEC Chairman Mary L. Schapiro. “Our proposed rules are intended to strengthen the integrity and improve the transparency of credit ratings.” Under the SEC’s proposal, NRSROs would be required to:

  • Report on internal controls.

  • Protect against conflicts of interest.
  • Establish professional standards for credit analysts.
  • Publicly provide – along with the publication of the credit rating – disclosure about the credit rating and the methodology used to determine it.
  • Enhance their public disclosures about the performance of their credit ratings.
  • The SEC’s proposal also requires disclosure concerning third-party due diligence reports for asset-backed securities.”
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