SEC Releases Annual Report on Rating Agencies – Corporate/Commercial Law


United States: SEC publishes annual report on rating agencies

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The SEC’s Office of Credit Ratings (“OCR”) reviewed Nationally Recognized Statistical Rating Organizations (“NRSROs”) in its 2021 Annual Staff Report.

The report provided the review of NRSRO staff and focused on key topics including competition, transparency and conflict of interest between organisations. OCR’s review program reviewed and reported on eight legally mandated areas, as well as environmental, social and governance (“ESG”) considerations, COVID-19 risks and treatment. of various types of securities, including secured loan obligations, commercial real estate, consumer asset-backed securities, corporates and low-rated municipalities.

The discussion of NRSO ratings of ESG-related products is the most notable addition to the annual report, as the topic was not mentioned anywhere in the previous report published in January 2020. The SEC found that the rating agencies and their affiliates have developed “a number” of ESG-related products, which have created compliance risks for rating agencies. Risk factors identified include inconsistent methodologies, inadequate information, internal control failures and conflicts of interest.

Rating agencies’ criticisms of ESG notwithstanding, the report says that over time, different rating agencies have steadily improved their compliance (see graph 3 on page 20 of the latest OCR report).

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