Oversight

SEC report finds lack of review procedures at credit rating agency

140px-US-SecuritiesAndExchangeCommission-Seal.svgThe SEC released a report last week that showed improvements in compliance at credit rating agencies, though an examination of the agencies showed a lack of review procedures and oversight of the development of new rating methodologies.

In its annual report—mandated by the Dodd-Frank Act—the SEC focused on activities of credit rating agencies registered as nationally recognized statistical rating organizations.

The report found that a larger unnamed credit rating agency lacked “adequate controls for timely updating certain ratings after an initial surveillance review.”

SEC staff found the agency did not have policies in place regarding the timely review of ratings under review, and in one instance, the credit rating agency took no action for three months. The SEC recommended that the entity improve controls to ensure its rating process is consistent with federal securities law.

Additionally, the SEC found that at one unnamed smaller credit rating agency, a senior executive allegedly attempted to influence staff to violate policies for ratings and criteria development, and at another agency, there were no controls to prohibit business interests from influencing the development of ratings methodologies.

The report also found that two credit rating agencies lacked adequate disclosures distinguishing NRSRO ratings from non-NRSRO ratings, and SEC staff recommended that the entities improve their disclosures to better distinguish the ratings.

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