A few years later, the Credit Rating Agency Reform Act of 2006 provided the SEC with statutory authority to regulate credit ratings firms and required the SEC to clarify the guidelines for obtaining the
NRSRO designation.
which made its name in mutual fund ratings, acquired credit ratings firm Real-point LLC, an
NRSRO, in early 2010.
Until that time, only five agencies were granted
NRSRO status, two of which were later acquired by one of the "big three," again leaving only Moody's, S&P and Fitch to rate the nation's public sector debt.
This opacity began clearing in 2006 when the Credit Rating Agency Reform Act required the SEC to lower
NRSRO licensing entry barriers, make the process more transparent and allow all qualified applicants to obtain the
NRSRO designation.
District Court for the Southern District of New York recognized typical First Amendment protections for
NRSRO credit ratings because they are matters of public concern.
The
NRSRO designation, however, had become a significant regulatory barrier to entry into the bond rating business and a significant regulatory protection for the incumbents.
Regulators should allow other rating firms the opportunity to earn
NRSRO designation.
The SEC issued its annual staff report on the findings of examinations of credit rating agencies registered as nationally recognized statistical rating organizations (
NRSROs) and submitted a separate report on
NRSROs to Congress.
SEC's proposed rules would require that the
NRSRO include a description of how the representations, warranties and enforcement mechanisms differ from those in issuances of similar securities.
Investors rely upon statements that
NRSROs make in their applications and reports submitted to the Commission, particularly those that describe how the
NRSRO determines credit ratings," said Robert Khuzami, Director of the SEC's Division of Enforcement.
If a security is not rated by an
NRSRO, the SVO will value and classify the security as debt, preferred equity or common equity.
NRSRO status was obtained by requesting a staff no-action letter from the SEC.
