Report to Congress

Credit Rating Agency Independence Study

As Required by Section 939C of the

Dodd-Frank Wall Street Reform and 

Consumer Protection Act

___________________________

November 2013 

This is a report prepared by the Staff of the Office of Credit Ratings of the U.S. Securities 

and Exchange Commission. The Commission has expressed no view regarding the 

analysis, findings or conclusions contained in this report. 
Table of Contents

Introduction ..................................................................................................................................... 3

Part One .......................................................................................................................................... 4

I. Dodd-Frank Independence Study Requirement and Annual NRSRO Examination 

Requirement .................................................................................................................................... 4

A. Independence Study ............................................................................................................. 4

B. Annual NRSRO Examinations and Report .......................................................................... 5

II. Current NRSROs ..................................................................................................................... 7

III. Current U.S. Regulatory Framework ...................................................................................... 8

A. Rule 17g-5(a) and Rule 17g-5(b) (Managed Conflicts of Interest) ..................................... 9

B. Rule 17g-5(c) (Prohibited Conflicts of Interest) ................................................................ 10

C. Rule 17g-6 (Prohibited Acts and Practices) ....................................................................... 11

D. Reporting Requirements .................................................................................................... 12

i. Form NRSRO ................................................................................................................. 12

ii. Rule 17g-2(a)(5) ............................................................................................................. 13

IV. Applicable Proposed NRSRO Rules ..................................................................................... 14

V. IOSCO Code of Conduct and European Union Credit Rating Agency Regulations ............ 15

A. IOSCO Code of Conduct ................................................................................................... 15

B. European Union Credit Rating Agency Regulations ......................................................... 16

Part Two ........................................................................................................................................ 18

VI. Overview of NRSRO Ancillary Services and Potential Conflicts of Interest Involved ........ 18

A. Ancillary Services Definition Used in this Report ............................................................ 18

B. Ancillary Services Provided by NRSROs.......................................................................... 19

C. Potential Conflicts of Interest Involving Ancillary Services ............................................. 21

VII. Description of NRSRO Ancillary Services and Policies and Procedures to Manage Potential 

Conflicts of Interest....................................................................................................................... 24

A. A.M. Best ........................................................................................................................... 25

i. Products and Services..................................................................................................... 25

ii. Policies and Procedures .................................................................................................. 26

B. DBRS ................................................................................................................................. 26

i. Products and Services..................................................................................................... 26

ii. Policies and Procedures .................................................................................................. 27

C. EJR ..................................................................................................................................... 28
2 

i. Products and Services..................................................................................................... 28

ii. Policies and Procedures .................................................................................................. 28

D. Fitch Ratings ...................................................................................................................... 29

i. Products and Services..................................................................................................... 29

ii. Policies and Procedures .................................................................................................. 30

E. HR Ratings ......................................................................................................................... 31

i. Products and Services..................................................................................................... 31

ii. Policies and Procedures .................................................................................................. 31

F. JCR ..................................................................................................................................... 32

i. Products and Services..................................................................................................... 32

ii. Policies and Procedures .................................................................................................. 32

G. Kroll ................................................................................................................................... 33

i. Products and Services..................................................................................................... 33

ii. Policies and Procedures .................................................................................................. 33

H. Moody’s ............................................................................................................................. 34

i. Products and Services..................................................................................................... 34

ii. Policies and Procedures .................................................................................................. 36

I. Morningstar ........................................................................................................................ 37

i. Products and Services..................................................................................................... 37

ii. Policies and Procedures .................................................................................................. 37

J. S&P .................................................................................................................................... 38

i. Products and Services..................................................................................................... 38

ii. Policies and Procedures .................................................................................................. 40

VIII. NRSRO Enforcement of Policies and Procedures; NRSRO Exam Report Findings .......... 41

A. NRSRO Enforcement of Policies and Procedures ............................................................. 41

B. NRSRO Exam Report Findings ......................................................................................... 42

IX. Comparable Conflicts of Interest .......................................................................................... 43

X. Conclusions and Recommendations ...................................................................................... 46
3 

Introduction

This report, prepared by the staff of the Office of Credit Ratings (the “Staff”) of the U.S. 

Securities and Exchange Commission (the “Commission”), is being submitted under Section 

939C (“Section 939C”) of the Dodd-Frank Wall Street Reform and Consumer Protection Act 

(the “Dodd-Frank Act”) to the Committee on Banking, Housing, and Urban Affairs of the U.S. 

Senate and the Committee on Financial Services of the U.S. House of Representatives 

(collectively, the “Congressional Committees”).

This report is divided into Part One and Part Two. Part One, including Sections I through V, 

describes the study (the “Dodd-Frank Independence Study” or the “Study”) required by Section 

939C on the independence of nationally recognized statistical rating organizations (“NRSROs”) 

and how such independence affects ratings issued by the NRSROs; describes the annual 

examinations of NRSROs; identifies the current NRSROs; and reviews the U.S. and foreign 

regulatory backdrop for the provision of ancillary services by the credit rating industry and 

conflicts of interest with respect thereto. 

Part Two of this report, including Sections VI through X, includes an overview of the 

ancillary services provided by the NRSROs and the potential conflicts of interest involved; 

reviews, on an entity-by-entity basis, the details of the ancillary services provided by the 

NRSROs and the applicable policies and procedures which have been publicly disclosed by the 

NRSROs; describes certain self-enforcement measures taken by NRSROs with respect to such 

policies and procedures; describes the results of relevant essential findings from recent annual 

NRSRO examinations; considers comparable conflicts of interest; and offers related conclusions 

and recommendations. 
4 

Part One

I. Dodd-Frank Independence Study Requirement and Annual NRSRO Examination 

Requirement

A. Independence Study

On July 21, 2010, President Obama signed the Dodd-Frank Act into law.1 Title IX, Subtitle 

C of the Dodd-Frank Act, consisting of Sections 931 through 939H and titled “Improvements to 

the Regulation of Credit Rating Agencies,” amended Section 15E (“Section 15E”) of the 

Securities Exchange Act of 1934 (the “Exchange Act”)2 to impose new self-executing 

requirements applicable to NRSROs and required the Commission to adopt rules applicable to 

NRSROs in a number of areas. The credit rating agencies which are currently registered as 

NRSROs are listed in Section II of this report. 

One of the Congressional findings included in the Dodd-Frank Act was that rating agencies, 

in particular in advising arrangers of structured financial products on potential ratings of such 

products, face conflicts of interest that need to be carefully monitored.3 In light of this finding, 

the Dodd-Frank Act required, among other things, various studies to be conducted, including a 

Commission Study on Strengthening Credit Rating Agency Independence.4

 Section 939C 

requires the Commission to conduct a study of the independence of NRSROs and how NRSRO 

independence affects the ratings issued by the NRSROs. In conducting this study, the 

Commission is required to evaluate the management of conflicts of interest raised by an NRSRO

providing other services, such as risk management advisory services, ancillary assistance, or 

 

1

 See Pub. L. No. 111-203, 124 Stat. 1376 (2010).

 

2

 15 U.S.C. § 78o-7.

3

 See Pub. L. No. 111-203 § 931(4). A Senate Report related to the Dodd-Frank Act noted, for instance, that 

conflicts of interest in the process of rating structured financial products contributed to the issuance of 

inaccurate ratings by rating agencies and accordingly to the mismanagement of risk by financial institutions 

and investors. See S. Report. No. 111-176 (2010).

4

 See Pub. L. No. 111-203 §§ 939, 939C - 939F.
5 

consulting services, and the potential impact of rules prohibiting an NRSRO that provides a 

rating to an issuer from providing other services to the issuer. 

The Dodd-Frank Act further requires the Chairman of the Commission to submit a report on 

the results of the study, “including recommendations, if any, for improving the integrity of 

ratings issued by [NRSROs]” to the Congressional Committees not later than three years after 

the enactment of the Dodd-Frank Act.5

B. Annual NRSRO Examinations and Report

Section 15E(p)(3)(A) of the Exchange Act, which was added by the Dodd-Frank Act, 

requires the Commission’s Office of Credit Ratings to conduct an examination of each NRSRO 

at least annually.6 Each examination must include a review of eight areas,7 including the 

management of conflicts of interest by the NRSROs.8

 

The purpose of NRSRO examinations is, generally, to “facilitate [NRSRO] compliance with 

applicable laws and rules, identify potential violations of such laws and rules, and monitor for 

remedial action.”9

 During the examination process, the Staff generally maintains ongoing 

communication regarding its findings with each NRSRO, and at the end of the process, the Staff 

provides a letter to each NRSRO summarizing the Staff’s findings and recommendations. Such 

findings and recommendations are discussed with each NRSRO. 

Potential violations of U.S. securities laws discovered in an NRSRO examination have to 

date been, and may in the future be, referred for potential enforcement action, in order to 

 

5 See Pub. L. No. 111-203 § 939C(c).

6 Section 15E(p)(3)(A).

7 Section 15E(p)(3)(B)(i)–(viii). 

8 Section 15E(p)(3)(B)(ii). 

9 See 2012 Summary Report of Commission Staff’s Examinations of Each Nationally Recognized Statistical 

Rating Organization, Commission staff (Nov. 2012), at 3, available at

http://www.sec.gov/news/studies/2012/nrsro-summary-report-2012.pdf. 

 

 

 

 

 
6 

investigate and take further action when appropriate, such as in a Federal court or an 

administrative action.10 

The Commission is required under Section 15E(p)(3)(C) of the Exchange Act to make 

publicly available an annual report summarizing: (i) the essential findings of the NRSRO 

examinations as deemed appropriate by the Commission; (ii) responses by the NRSROs to any 

material regulatory deficiencies identified by the Commission under such findings; and (iii)

whether the NRSROs have appropriately addressed the Commission’s recommendations from

previous annual examination reports. 

Since the enactment of the Dodd-Frank Act, the Commission has issued two examination

reports under Section 15E(p)(3)(C) (the “NRSRO Exam Reports”) in September 2011, generally 

covering the period from December 1, 2009 through August 1, 2010 (the “2011 NRSRO Exam 

Report”)11 and in November 2012, generally covering the period from August 1, 2010 through 

September 30, 2011 (the “2012 NRSRO Exam Report”).12 

Essential findings relating to the NRSROs’ management of conflicts of interest involving 

ancillary services appear in the NRSRO Exam Reports. Such findings are described in Section 

VIII.B of this report. 

 

10 For example, in April 2012, the Commission instituted administrative proceedings against Egan-Jones 

Ratings Co. (“EJR”) and Sean Egan, EJR’s founder, President, owner, and primary analyst. In the Order 

Instituting Proceedings, the Commission alleged that EJR and Mr. Egan committed numerous violations of 

Sections 15E and 17(a) and the rules thereunder. On January 22, 2013, the Commission announced that 

EJR and Egan agreed, among other things, as part of a settlement of the administrative action brought by 

the Commission, to be barred for at least 18 months from rating asset-backed securities and government 

securities as an NRSRO. See In the Matter of Egan-Jones Ratings Company and Sean Egan, Release No. 

66854 (April 24, 2012), In the Matter of Egan-Jones Ratings Company and Sean Egan, Release No. 68703 

(January 22, 2013) and Commission press release at http://www.sec.gov/news/press/2013/2013-7.htm. 

11 See 2011 Summary Report of Commission Staff’s Examinations of Each Nationally Recognized Statistical 

Rating Organization, Commission staff (Sep. 2011), available at

http://www.sec.gov/news/studies/2011/2011_nrsro_section15e_examinations_summary_report.pdf. 

12 See 2012 Summary Report of Commission Staff’s Examinations of Each Nationally Recognized Statistical 

Rating Organization, Commission staff.
7 

II. Current NRSROs

As of the date of this report, ten credit rating agencies are registered as NRSROs: A.M. Best 

Company, Inc. (“A.M. Best”), DBRS, Inc. (“DBRS”), EJR, Fitch Ratings, Inc. (“Fitch Ratings”), 

HR Ratings de México, S.A. de C.V. (“HR Ratings”), Japan Credit Rating Agency, Ltd. 

(“JCR”), Kroll Bond Rating Agency, Inc. (“Kroll”), Moody’s Investors Service, Inc. 

(“Moody’s”), Morningstar Credit Ratings, LLC (“Morningstar”), and Standard & Poor’s Ratings 

Services (“S&P”). The following table identifies each such NRSRO, the classes of credit 

ratings in which it is currently registered, and the date of its initial registration:

NRSRO Current Registered 

Classes of Credit Ratings

Initial

Registration Date

A.M. Best • Insurance companies

• Corporate issuers

• Issuers of asset-backed securities

9/24/2007 

DBRS • Financial institutions

• Insurance companies

• Corporate issuers

• Issuers of asset-backed securities

• Issuers of government securities

9/24/2007

EJR13 • Financial institutions

• Insurance companies

• Corporate issuers

12/21/2007

Fitch Ratings • Financial institutions

• Insurance companies

• Corporate issuers

• Issuers of asset-backed securities

• Issuers of government securities

9/24/2007 

HR Ratings • Issuers of government securities 11/5/2012

JCR • Financial institutions

• Insurance companies

• Corporate issuers

• Issuers of government securities

9/24/2007

Kroll • Financial institutions

• Insurance companies

• Corporate issuers

• Issuers of asset-backed securities

• Issuers of government securities

2/11/2008

Moody’s • Financial institutions

• Insurance companies

• Corporate issuers

• Issuers of asset-backed securities

• Issuers of government securities

9/24/2007

Morningstar • Issuers of asset-backed securities 6/23/2008

S&P • Financial institutions

• Insurance companies

• Corporate issuers

• Issuers of asset-backed securities

• Issuers of government securities

9/24/2007

 

13 See supra note 10 for a description of an administrative action brought by the Commission against EJR and 

Sean Egan. Prior to January 22, 2013, EJR was registered as an NRSRO in the ratings categories of assetbacked securities and government securities. 
8 

III. Current U.S. Regulatory Framework 

NRSROs are regulated by the Commission primarily pursuant to Section 15E, which was 

added to the Exchange Act by the Credit Rating Agency Reform Act of 2006 (the “CRARA”)14

and amended by the Dodd-Frank Act. The CRARA established Commission oversight over 

credit rating agencies that register with the Commission as NRSROs.15 In June 2007, the 

Commission adopted a series of rules implementing a registration and oversight program for 

credit rating agencies that register as NRSROs.16 

Section 15E(h)(1) of the Exchange Act requires each NRSRO to establish, maintain, and 

enforce written policies and procedures reasonably designed, taking into consideration the nature 

of its and its affiliates’ business, to address and manage any conflicts of interest that can arise 

from such business. Section 15E(h)(2) requires the Commission to issue rules to prohibit or 

require the management and disclosure of such conflicts of interest. The Commission adopted 

Exchange Act Rule 17g-5 to implement Section 15E(h)(2). 

Sections A through D below describe the Commission’s rules and statutory requirements 

relevant to the management of conflicts of interest involving ancillary services. 

 

14 See Pub. L. No. 109-291, 120 Stat. 1327 (2006).

15 Prior to the enactment of rules in June 2007 to implement provisions of the CRARA, the process of 

identifying NRSROs had historically been undertaken by the Commission staff through the issuance of noaction letters where the staff had determined, among other things, that the credit rating agency was 

recognized nationally by the predominant users of credit ratings as issuing credible and reliable ratings. See

Oversight of Credit Rating Agencies Registered as Nationally Recognized Statistical Rating Organizations, 

Exchange Act Release No. 34-55857 (Jun. 5, 2007), 72 FR 33564 (Jun. 18, 2007), available at

http://www.sec.gov/rules/final/2007/34-55857.pdf (“2007 Adopting Release”).

16 See 2007 Adopting Release, 72 FR 33564. The Commission adopted rules that prescribe: how a credit 

rating agency must apply to the Commission for registration as an NRSRO (Rule 17g-1 (17 CFR 240.17g1)); the form of the application and the information that must be provided in the application (Form NRSRO 

and the Instructions to Form NRSRO (17 CFR 240.249b.300)); the records an NRSRO must make and 

maintain (Rule 17g-2 (17 CFR 240.17g2)); the reports an NRSRO must furnish to the Commission 

annually (Rule 17g-3 (17 CFR 240.17g-3)); the areas that must be addressed in an NRSRO’s procedures to 

prevent the misuse of material nonpublic information (Rule 17g-4 (17 CFR 240.17g-4)); the types of 

conflicts of interest an NRSRO must disclose and manage or is prohibited from having (Rule 17g-5 (17 

CFR 240.17g-5)); and certain unfair, coercive, or abusive practices an NRSRO is prohibited from engaging 

in (Rule 17g-6 (17 CFR 240.17g-6)).
9 

A. Rule 17g-5(a) and Rule 17g-5(b) (Managed Conflicts of Interest) 

Rule 17g-5(a) prohibits NRSROs from having a conflict of interest identified in Rule 17g5(b)17, relating to the issuance or maintenance of a credit rating, unless it is disclosed in Exhibit 

6 to Form NRSRO and the NRSRO has established, and maintains and enforces, policies and 

procedures to address and manage the conflict.18 

 

Certain of the conflicts of interest listed in Rule 17g-5(b) relate to an NRSRO’s provision of 

ancillary services. For example, Rule 17g-5(b)(3) identifies the following conflict of interest: 

“Being paid for services in addition to [italics added] determining credit ratings by issuers, 

underwriters, or obligors that have paid the [NRSRO] to determine a credit rating.”19 

Rule 17g-5(b)(4) identifies the following conflict of interest relating to services other than 

credit ratings which are paid for by subscribers: “Being paid by persons for subscriptions to 

receive or access the credit ratings of the [NRSRO] and/or for other services offered by the 

[NRSRO] [italics added] where such persons may use the credit ratings of the [NRSRO] to 

comply with, and obtain benefits or relief under, statutes and regulations using the term 

nationally recognized statistical rating organization.”20

 

17 The conflicts of interest listed in Rule 17g-5(b) include, without limitation, those relating to the payment 

for ratings or ratings subscriptions; relationships between persons within NRSROs and entities rated by the 

NRSROs; brokers or dealers associated with NRSROs; and asset-backed securities ratings paid for by 

issuers.

18 See 17 CFR 240.17g-5(a). Rule 17g-5(a)(3) contains additional requirements that apply to certain conflicts 

of interest relating to issuing or maintaining a credit rating for certain other securities, including those 

issued as part of an asset-backed securities transaction.

19 See 17 CFR 240.17g-5(b)(3). 

20 See 17 CFR 240.17g-5(b)(4). Rule 17g-5(b)(5) identifies an additional conflict of interest involving 

payment by persons for subscriptions to receive credit ratings and/or for “other services offered by the 

NRSRO.” See 17 CFR 240.17g-5(b)(5).
10 

In Exhibit 6 of their most recent Forms NRSRO, all of the NRSROs except for DBRS and 

HR Ratings identified the conflict referred to in Rule 17g-5(b)(3) and also disclosed in Exhibit 7 

to Form NRSRO their policies and procedures addressing such conflict of interest.

21 

B. Rule 17g-5(c) (Prohibited Conflicts of Interest)

In contrast to Rule 17g-5(a), an NRSRO is absolutely prohibited from having the conflicts of 

interest listed in Rule 17g-5(c).22 Such conflicts include the conflict identified in Rule 17g5(c)(5)23: an NRSRO’s issuing or maintaining a credit rating as a credit rating agency “with 

respect to an obligor or security where the [NRSRO] or a person associated with the [NRSRO] 

made recommendations to the obligor or the issuer, underwriter, or sponsor of the security about 

the corporate or legal structure, assets, liabilities, or activities of the obligor or issuer of the 

security.”24 

The purpose of Rule 17g-5(c)(5) is to address the potential lack of impartiality that could 

arise when an NRSRO determines a credit rating based on a corporate structure that was 

developed after consultations with the NRSRO or its affiliates on how to achieve a desired credit 

rating. “In simple terms,” the Commission has explained, “the rule prohibits an NRSRO from 

rating its own work or the work of an affiliate.”25 

 

21 EJR also disclosed in such exhibits the conflicts of interest referred to in Rules 17g-5(b)(4) and 17g5(b)(5). See Exhibits 6 and 7 to Form NRSRO for all currently registered NRSROs, and Section III.D of 

this report for a description of Exhibits 6 and 7 to Form NRSRO.

 

22 17 CFR 240.17g-5(c).

23 Other prohibited conflicts of interest referred to in Rule 17g-5(c) include, without limitation, an NRSRO’s 

issuing or maintaining a credit rating where the person soliciting the rating provided the NRSRO with 10% 

of more of the NRSRO’s total net revenue; the NRSRO or credit analyst having an ownership interest in 

the rated entity; the rated entity being a person associated with the NRSRO; the NRSRO or a credit analyst 

being an officer or director of the rated entity; the fee paid for the rating having been negotiated, discussed 

or arranged by persons within the NRSRO responsible for credit ratings; and the credit analyst involved 

with the rating having received gifts from the rated entity. See 17 CFR 240.17g-5(c).

24 See 17 CFR 240.17g-5(c)(5).

25 Amendments to Rules for Nationally Recognized Statistical Rating Organizations, Exchange Act Release 

No. 34-59342 (Feb. 2, 2009), 74 FR 6456, at 6466 (Feb. 9, 2009), available at

http://www.sec.gov/rules/final/2009/34-59342.pdf. 
11 

The Commission has noted that the rule would be violated if the feedback process turns into 

recommendations by the NRSRO about changes to the structure, assets, liabilities or activities of 

the obligor or security that the person seeking the rating potentially could make to obtain a 

desired credit rating.

26

Another conflict of interest prohibited by Rule 17g-5(c) that could apply to an NRSRO’s 

provision of ancillary services is Rule 17g-5(c)(1), which prohibits an NRSRO from issuing or 

maintaining a credit rating as a credit rating agency solicited by a person that provided the 

NRSRO with net revenue27 equal to or exceeding 10% of the total net revenue of the NRSRO for 

the most recently ended fiscal year. 

C. Rule 17g-6 (Prohibited Acts and Practices)

Rule 17g-6 prohibits an NRSRO from engaging in any of the following unfair, coercive, or 

abusive practices:

28 

(1) Conditioning or threatening to condition the issuance of a credit rating on the 

purchase by an obligor or issuer, or an affiliate of the obligor or issuer, of any other 

services or products, including pre-credit rating assessment products, of the [NRSRO] or 

any person associated with the [NRSRO].

 

26 Id. at 6466.

27 See 17 CFR 240.17g-5(c)(1). Net revenue means “revenue earned by the applicant or NRSRO for any type 

of service or product, regardless of whether related to credit rating services, and net of any rebates and 

allowances paid or owed to the person by the applicant or NRSRO.” See 2007 Adopting Release, 72 FR at 

33580.

28 See 17 CFR 240.17g-6. Rule 17g-6(a)(4) also prohibits the following practice: Issuing or threatening to 

issue a lower credit rating, lowering or threatening to lower an existing credit rating, refusing to issue a 

credit rating, or withdrawing or threatening to withdraw a credit rating, with respect to securities or money 

market instruments issued by an asset pool or as part of any asset-backed or mortgage-backed securities 

transaction, unless all or a portion of the assets within such pool or part of such transaction also are rated by 

the NRSRO, where such practice is engaged in by the nationally recognized statistical rating organization 

for an anticompetitive purpose.
12 

(2) Issuing, or offering or threatening to issue, a credit rating that is not determined in 

accordance with the [NRSRO’s] established procedures and methodologies for 

determining credit ratings, based on whether the rated person, or an affiliate of the rated 

person, purchases or will purchase the credit rating or any other service or product of the 

[NRSRO] or any person associated with the [NRSRO]. 

(3) Modifying, or offering or threatening to modify, a credit rating in a manner that is 

contrary to the [NRSRO’s] established procedures and methodologies for modifying 

credit ratings based on whether the rated person, or an affiliate of the rated person, 

purchases or will purchase the credit rating or any other service or product of the 

[NRSRO] or any person associated with the [NRSRO]. 

D. Reporting Requirements

i. Form NRSRO

Section 15E(b)(2) of the Exchange Act requires each NRSRO to file with the Commission 

annually an amendment to its registration certifying that certain information and documents in its 

application for registration continue to be accurate and to list any material changes that occurred 

to the information or documents during the previous calendar year. Paragraph (a) of Rule 17g-1 

requires that the initial application for registration be furnished to the Commission on Form 

NRSRO and paragraph (f) of Rule 17g-1 requires that the annual certification be furnished to the 

Commission on Form NRSRO. NRSROs are required to make publicly available Exhibits 1 

through 9 of Form NRSRO.29 Exhibits 10 through 13 and the financial reports under Rule 17g-3 

are not required to be made publicly available. 

Exhibit 4 to Form NRSRO requires an NRSRO to provide the Commission and make public 

information regarding the organizational structure of the NRSRO, including an organizational 

 

29 See Section 15E(a)(3) and paragraph (i) of Rule 17g-1.
13 

chart showing the divisions, departments, and business units of the NRSRO.30 Such information 

is intended to assist credit ratings users and the Commission in understanding where potential 

conflicts of interest relating to ancillary business activities might arise.31 

Exhibit 6 to Form NRSRO requires an NRSRO to identify the types of conflicts of interest 

relating to the issuance of credit ratings that are material to the NRSRO. Exhibit 7 to Form 

NRSRO requires an NRSRO to provide its written policies and procedures that address and 

manage conflicts of interest, except for information that is proprietary or would diminish the 

effectiveness of a specific policy or procedure if made publicly available.32 

Rule 17g-3(a)(3) requires an NRSRO to provide the Commission on an annual basis with 

unaudited information as to the amount of revenue generated from certain enumerated services 

and products, including revenue from determining and maintaining credit ratings (Rule 17g3(a)(3)(i)), revenue from subscribers (Rule 17g-3(a)(3)(ii)), revenue from granting licenses or 

rights to publish credit ratings (Rule 17g-3(a)(3)(iii)), and revenue from “all other services and 

products” (Rule 17g-3(a)(3)(iv)). The NRSRO must include descriptions of any major sources 

of the revenue from “other services and products.”33 

ii. Rule 17g-2(a)(5)

Rule 17g-2(a)(5) requires an NRSRO to make and retain a record listing the general types of 

services and products it offers. Such record is intended to provide the Commission with details 

of the ancillary business activities of the NRSRO, to be useful in identifying potential conflicts 

of interest that arise from such activities and to enable Commission examiners to review whether 

the NRSRO has implemented procedures to manage such potential conflicts.34

 

30 See Exhibit 4 to Form NRSRO and Instructions to Exhibit 4.

31 See 2007 Adopting Release, 72 FR at 33576. 

32 See Exhibits 6 and 7 to Form NRSRO and the Instructions to Form NRSRO.

33 See Rule 17g-3(a)(3).

34 See 2007 Adopting Release, 72 FR at 33585.
14 

IV. Applicable Proposed NRSRO Rules 

The Commission proposed certain NRSRO rules in May 2011 relevant to ancillary services 

and conflicts of interest.35 Proposed Rule 17g-7(a)(1)(ii)(J) would require an NRSRO to provide 

an information disclosure form when taking a rating action, which form would include 

information relating to conflicts of interest of the NRSRO, including a classification of the 

relevant rating as either “solicited sell-side,” “solicited buy-side,” or “unsolicited” and, if the 

credit rating was solicited, a disclosure of whether the NRSRO provided services other than 

determining credit ratings to the person that paid for the rating during the most recently ended 

fiscal year.36 

Proposed Rule 17g-7(a)(1)(iii) would require such disclosure form to be accompanied by an 

attestation, by a person within the NRSRO responsible for the rating action, to the effect that (i) 

no part of the credit rating was influenced by any other business activities; (ii) the credit rating 

was based solely upon the merits of the obligor, security or money market instrument being 

rated; and (iii) the credit rating was an independent evaluation of the risks and merits of the 

obligor, security or money market instrument being rated.

37

 In addition, a new prohibited conflict of interest is proposed to be added to Rule 17g-5, 

which would prohibit an NRSRO from issuing or maintaining a credit rating where a person 

within the NRSRO who participates in sales and marketing of a product or service of the 

NRSRO (or a product or service of a person associated with the NRSRO) also participates in 

determining or monitoring the credit rating, or developing or approving procedures or 

methodologies used to determine the credit rating.38

 

35 See Proposed Rules for Nationally Recognized Statistical Rating Organizations, Exchange Act Release No. 

34-64514 (May 18, 2011), 76 FR 33420 (Jun. 8, 2011), available at

http://www.sec.gov/rules/proposed/2011/34-64514.pdf. 

36 Id. at 33461-33462.

37 Id. at 33465.

38 Id. at 33513-14.
15 

Commission staff continues to consider the comments received on these proposals as it 

formulates its final recommendations to the Commission.

V. IOSCO Code of Conduct and European Union Credit Rating Agency Regulations 

A detailed survey of non-U.S. regulations relating to conflicts of interest involving ancillary 

services is beyond the scope of this report. However, described briefly below are a code of 

conduct published by an international organization of securities regulators, as well as certain 

pertinent European Union (“EU”) regulations which apply to several of the NRSROs and which 

are relevant to issues relating to conflicts of interest in keeping with the scope of this report. 

A. IOSCO Code of Conduct

Section 939C requires that a study of the independence of NRSROs and how it affects the 

ratings issued by NRSROs be included in this report. In this regard, the International 

Organization of Securities Commissions (“IOSCO”) Code specifically addresses the issue of 

rating agency independence in the context of the avoidance of conflicts of interest relating to 

ancillary business. 

IOSCO published the “Code of Conduct Fundamentals for Credit Rating Agencies” in 

December 2004,39 which was revised in May 200840 (the “IOSCO Code”).41 The IOSCO Code 

was intended to serve as a guide to, and framework for, implementing the objectives of certain 

 

39 See Code of Conduct Fundamentals for Credit Rating Agencies, The Technical Committee of the 

International Organization of Securities Commissions (Dec. 2004), available at

http://www.iosco.org/library/pubdocs/pdf/IOSCOPD180.pdf. 

40 See Code of Conduct Fundamentals for Credit Rating Agencies, The Technical Committee of the 

International Organization of Securities Commissions (Revised May 2008), available at

http://www.iosco.org/library/pubdocs/pdf/IOSCOPD271.pdf. 

41 IOSCO, established in 1983, is an international body of over 120 securities regulators, including the 

Commission, and 80 securities markets participants. See http://www.iosco.org/.
16 

principles regarding the activities of credit rating agencies which IOSCO published in September 

2003.42 

Section 2.5 of the IOSCO Code provides as follows: 

 

A [credit rating agency] should separate, operationally and legally, its credit rating business 

and [credit rating agency] analysts from any other businesses of the [credit rating agency], 

including consulting businesses, that may present a conflict of interest. A [credit rating 

agency] should ensure that ancillary business operations which do not necessarily present 

conflicts of interest with the [credit rating agency’s] rating business have in place procedures 

and mechanisms designed to minimize the likelihood that conflicts of interest will arise. A 

[credit rating agency] should also define what it considers, and does not consider, to be an 

ancillary business and why.43

With the exception of EJR, the code of conduct for each NRSRO describes the extent to 

which it is based on, or consistent with, the IOSCO Code.44 The specific language incorporating 

Section 2.5 of the IOSCO Code into the codes of conduct for the NRSROs vary among the 

NRSROs.

B. European Union Credit Rating Agency Regulations 

The credit rating agency regulations of the EU provide that credit rating agencies “should be 

able to provide ancillary services where this does not create potential conflicts of interest with 

 

42 See IOSCO Statement of Principles Regarding the Activities of Credit Rating Agencies, A Statement of the 

Technical Committee of the International Organization of Securities Commissions (25 September 2003), 

available at http://www.iosco.org/library/pubdocs/pdf/IOSCOPD151.pdf. 

43 Code of Conduct Fundamentals for Credit Rating Agencies, The Technical Committee of the International 

Organization of Securities Commissions. A report prepared by The Committee of European Securities 

Regulators (the predecessor of the European Securities and Markets Authority or “ESMA”) dated 

December 2006, stated that ancillary services was one of the two areas where credit rating agencies did not 

comply with the IOSCO Code. See CESR’s Report to the European Commission on the compliance of 

credit rating agencies with the IOSCO Code, (Dec. 2006), paragraph 42, at 76, available at

http://www.esma.europa.eu/pl/system/files/06_545.pdf. 

44 See Exhibit 5 to Form NRSRO for all NRSROs.
17 

the issuing of credit ratings.”45 The regulations define ancillary services as “services other than 

issue [sic] of credit ratings” that are “not part of credit rating activities; they comprise market 

forecasts, estimates of economic trends, pricing analysis and other general data analysis as well 

as related distribution services.”46

Pursuant to such regulations, a credit rating agency must disclose in its final ratings reports 

any ancillary services provided for the rated entity or any related third party.47 It must also

generally disclose a list of its ancillary services and annually report revenue information 

including fees from non-credit rating activities, with a comprehensive description thereof.48 

Credit rating agencies are prohibited from providing consultancy or advisory services to the rated 

entity or a related third party regarding the corporate or legal structure, assets, liabilities or 

activities of that rated entity or related third party.49

Pursuant to an EU regulation adopted in March 2012, which is currently in effect, credit 

rating agencies are required to provide information regarding ancillary services such as a 

description of resources shared by rating and ancillary services and of arrangements to prevent, 

disclose and mitigate conflicts of interest between the rating business and ancillary services, as 

well as the results of internal assessments identifying existing or potential conflicts of interest 

between the rating business and ancillary services.

50

 

45 See Regulation (EC) No. 1060/2009 of the European Parliament and of the Council of 16 September 2009 

on Credit Rating Agencies, Official Journal L. 302, November 17, 2009, at 3, available at http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:302:0001:0031:EN:PDF. 

46 See Regulation (EC) No. 1060/2009 of the European Parliament and of the Council of 16 September 2009 

on Credit Rating Agencies at Art. 6, Point 2 and L 302/25, Annex I, Sec. B, Point 4.

47 See id. at Annex I, Sec. B, Point 4. 

48 See id. at Sec. E I-2 and III-7.

49 See id. at Annex I, Sec. B, Point 4.

50 See Commission Delegated Regulation (EU) 449/2012 of 21 March 2012 Supplementing Regulation (EC) 

No 1060/2009 Of The European Parliament And Of The Council With Regard To Regulatory Technical 

Standards On Information For Registration And Certification Of Credit Rating Agencies, Official Journal 

L. 140, May 30, 2012, at Article 22 and Article 26(2)(a), available at http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:140:0032:0052:EN:PDF. 
18 

Part Two

VI. Overview of NRSRO Ancillary Services and Potential Conflicts of Interest Involved

A. Ancillary Services Definition Used in this Report

Solely for purposes of this report, the Staff has created a definition termed “Ancillary 

Services.” Although “Ancillary Services” is not defined in Section 15E or currently in the rules 

thereunder, such term is being used in this report to mean all products and services provided by 

NRSROs other than the issuance of credit ratings. Such term would include, without limitation, 

“other services, such as risk management advisory services, ancillary assistance and consulting 

services,” as mentioned in Section 939C. 

As used in this report, “Ancillary Services” includes credit or rating evaluation services, 

credit or rating assessment services and indicative or impact assessment services (as further 

described in Section VII of this report), notwithstanding that (i) some NRSROs consider such 

services instead to be core ratings services and (ii) most of the NRSROs do not use the term 

“ancillary services” in the description of the non-ratings products and services they provide. The 

foregoing “Ancillary Services” definition does not reflect any position of the Staff regarding the 

types of products and services that are appropriately considered to constitute “Ancillary 

Services” and the creation of such definition should not be construed to indicate the potential for

any future rulemaking or guidance in respect of such defined term.

Section VII of this report describes in greater detail the Ancillary Services provided by 

NRSROs, as well as the range of terms and categories used by NRSROs to describe Ancillary 

Services.
19 

B. Ancillary Services Provided by NRSROs

Currently, one NRSRO’s51 website indicates that it does not provide products and services in 

addition to credit ratings. Another NRSRO’s52 website indicates that the NRSRO performs 

certain servicer evaluations, but it is unclear whether they are considered by the NRSRO to be 

Ancillary Services. Six of the NRSROs53 provide products and services which they differentiate 

from credit ratings. Two of the NRSROs54 provide Ancillary Services, but consider them to be 

core rating services. Some of the NRSROs provide such products and services through business 

lines, segments, groups or divisions within the NRSROs which are different from those 

providing credit ratings.55 Other NRSROs have affiliated companies or other businesses, not 

part of the NRSROs, that offer products and services related to credit rating services.56 Five of 

the NRSROs state in their policies that they do not provide consulting or advisory services.57 

The way in which the NRSROs define and categorize their products and services varies

greatly. Only two of the NRSROs use and define the term “ancillary” to describe products and 

services they offer other than the issuance of credit ratings.

58 Of the NRSROs providing rating 

assessment services and rating evaluation services, or similarly termed services (as further 

described in Section VII of this report), some categorize such services as part of the core ratings 

 

51 HR Ratings.

52 Kroll.

53 A.M. Best, EJR, JCR, Moody’s, Morningstar and S&P.

54 For example, DBRS and Fitch Ratings provide impact assessments and rating assessments, respectively.

55 A.M. Best, EJR and Morningstar.

56 Examples are Fitch Ratings and Fitch Solutions, Moody’s and Moody’s Analytics, and S&P and S&P 

Capital IQ. For further descriptions, see Sections VII.D.i, VII.H.i. and VII.J.i, respectively, of this report.

57 These NRSROs include A.M. Best, DBRS, Fitch Ratings, JCR and Moody’s.

58 JCR and S&P.
20 

business and others categorize them differently, as “other services,” “ancillary services” or 

“other permissible services.”59 

As indicated in Sections III and V of this report, the statutory references to Ancillary

Services also vary; using phrases such as services “other than the issuance of credit ratings” and 

“not involving the determination of credit ratings.” The variations in terminology used in the 

relevant statutes and by the NRSROs create difficulty in comparing revenue and other Ancillary 

Services information among the NRSROs and assessing the adequacy of policies and procedures 

which are intended to address the potential conflicts of interest involving Ancillary Services. 

As mentioned in Section III.A, all but two of the NRSROs

60 disclose on Exhibit 6 of their

Forms NRSRO the conflict of interest referred to in Rule 17g-5(b)(3) and, in Exhibit 7, their 

policies and procedures to manage such conflict of interest. Section VII of this report describes

the products and services provided by each NRSRO, as well as the relevant policies and 

procedures disclosed publicly by the NRSROs to manage conflicts of interest relating to 

Ancillary Services. Section VIII of this report describes certain actions taken by NRSROs to 

enforce such policies, as well as relevant essential findings from the NRSRO Exam Reports. 

As mentioned above, ancillary services are in some cases provided by the NRSRO, a nonNRSRO affiliate of the NRSRO, or in other cases, by both the NRSRO and a non-NRSRO 

affiliate. While this mix of delivery models reflects the state of the industry, the applicable rules 

under Section 15E impose requirements (for example, requirements relating to the maintenance 

of certain policies and procedures, management of conflicts of interest, establishment of internal 

supervisory controls and processing of complaints) on--and Section 15E contemplates 

Commission oversight and examination of--the NRSROs themselves including their credit rating 

affiliates as listed on Form NRSRO. Thus, the Staff’s ability under current Commission rules 

directly to obtain information regarding, and to examine, the effectiveness of policies and 

 

59 Such services are categorized as follows: A.M. Best – ratings services; DBRS – core services; Fitch 

Ratings – core services; JCR – ancillary services; Moody’s – other permissible services.

60 HR Ratings and DBRS. In addition, EJR also discloses in such exhibits the conflict of interest described in 

Rule 17g-5(b)(4).
21 

procedures could be affected by the choice of a non-NRSRO affiliate to provide such Ancillary 

Services.

C. Potential Conflicts of Interest Involving Ancillary Services

The independence of rating agencies and the integrity of the rating process can be 

compromised by potential conflicts of interest, such as those regarding Ancillary Services. 

Conflicts of interest involving Ancillary Services have been the subject of several reports, 

including a Commission report published in June 2003 entitled “Report on the Role and Function 

of Credit Rating Agencies in the Operation of the Securities Market” (the “2003 Report”).61 

One of the matters addressed by the 2003 Report was whether rating agencies should 

implement procedures to manage potential conflicts of interest that arise when rating agencies 

develop ancillary fee-based businesses. The 2003 Report, which pre-dated the CRARA and the 

Dodd-Frank Act, concluded that the Commission would explore whether NRSROs should 

implement such procedures.62

The 2003 Report expressed a concern about the impact on rating decisions by an issuer’s 

decision to purchase additional services offered by the rating agency.

63 For example, an NRSRO 

 

61 See Report on the Role and Function of Credit Rating Agencies in the Operation of the Securities Markets, 

Commission staff (Jan. 2003), available at http://www.sec.gov/news/studies/credratingreport0103.pdf. See

also, CESR’s Second Report To The European Commission On The Compliance Of Credit Rating 

Agencies With The IOSCO Code And The Role Of Credit Rating Agencies In Structured Finance (May 

2008), at 34-35, available at http://www.esma.europa.eu/system/files/CESR_08_277.pdf. The issuance of 

the 2003 Report was required by the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”). See SarbanesOxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745 (2002).

62 In the 2007 Adopting Release, the Commission indicated that several of the rules (i.e. Rules 17g-5 and 17g6) were being adopted partially in response to the issues raised in the 2003 Report. See 2007 Adopting 

Release, 72 FR at 33596-33600. Pursuant to Section 15E(h) of the CRARA, Congress gave the 

Commission the authority (and required the Commission) to issue final rules to prohibit, or require the 

management and disclosure of, any conflicts of interest relating to the issuance of credit ratings by a 

NRSRO, including, without limitation, conflicts of interest relating to the provision of consulting, advisory, 

or other services by a NRSRO to the obligor. See Section 15E(h)(2)(B).

63 See Report on the Role and Function of Credit Rating Agencies in the Operation of the Securities Markets, 

Commission staff at 42.
22 

might issue a more favorable than warranted credit rating to an issuer or other party in order to 

obtain ancillary services business from them, or an issuer that purchases a large amount of 

ancillary services could pressure the NRSRO to issue a more favorable than warranted rating on

that issuer. 

The 2003 Report stated that, “whether or not the purchase of ancillary services actually 

impacts the credit rating decision, issuers may be pressured into using them out of fear that their 

failure to do so could adversely impact their credit rating (or, conversely, with the expectation 

that purchasing these services could help their credit rating).”64 The 2003 Report also mentioned 

that, in the case of ratings assessment services, to the extent a rating agency has already 

“promised” a certain rating in an issuer’s hypothetical scenario, “pressure to match the actual 

rating to the promised rating is likely to be forceful, even if the ultimate analysis otherwise might 

not have supported the rating.”65 

The 2003 Report also noted that ratings analysts also perform certain ancillary services.66 In 

the case of an ancillary service for an issuer that directly relates to its rating, it could be 

beneficial to have the same analyst perform both services due to the analyst’s familiarity with the 

issuer. However, the analyst’s performance of the ancillary service could also pose a potential 

conflict of interest given the analyst’s proximity to the rating process and familiarity with the 

Ancillary Service being requested. 

Another concern expressed with respect to Ancillary Services is that they could involve an 

NRSRO making recommendations on the structure of a security to be rated—i.e. that rating 

agencies engaging in pre-rating dialogues with issuers may be unable to neutrally issue a credit 

rating because the rating agencies have become “creators of the instruments themselves.”67 

 

64 Id. at 43.

65 Id. at 43.

66 Id. at n.118.

67 Andrew D. Hatchett, SOX It to ‘Em: Using Sarbanes-Oxley as a Model for Regulating Conflicts of Interest 

in the Credit Rating Industry, 63 Ala. L. Rev, 414 (2012).
23 

Such concern about deal structuring was echoed in a final report issued by the Technical 

Committee of IOSCO in May 2008 entitled “The Role of Credit Rating Agencies in Structured 

Finance Markets,” as follows: 

An additional concern is that [credit rating agencies] are doing more than rating 

structured finance securities, namely: advising issuers on how to design the trust 

structures. In the corporate area, [credit rating agencies] will provide a ‘private rating’ 

based on a pro forma credit assessment of the impact of a potential transaction (e.g. 

merger, asset purchase) on the company’s credit rating...The serious question that has 

arisen is whether the current process for rating structured finance involves advice that is, 

in fact, an ancillary business operation which necessarily presents a conflict of interest. 

Conversely, while some observers believe that the structured finance rating process does 

not necessarily pose an inherent conflict of interest vis-à-vis the [credit rating agency’s] 

business more generally, the further question is whether a [credit rating agency] has 

sufficient controls in place to minimize the likelihood that conflicts of interest will 

arise.68

As indicated above, the potential conflicts of interest may apply to some types of Ancillary 

Services and not others. For example, certain of the NRSROs provide ratings or similar 

evaluations through their affiliates based on market indicia, which are distinct from traditional 

credit ratings issued by the NRSROs.69 While the concerns expressed above may also apply to 

the provision of such market-implied ratings or evaluations, it is also important that the NRSROs 

clearly describe the differences in methodologies and procedures used for such ratings or 

evaluations, and traditional credit ratings, and the extent to which market-based indicia may be 

used (if at all) in traditional ratings criteria. 

 

68 The Role of Credit Rating Agencies in Structured Finance Markets, The Technical Committee of the 

International Organization of Securities Commissions (May 2008), available at

http://www.iosco.org/library/pubdocs/pdf/IOSCOPD270.pdf. 

69 Fitch Solutions, Moody’s Analytics and S&P Capital IQ provide such type of service. For example, Fitch 

Solutions uses daily credit default swap market quotes to derive implied ratings, which it views as a 

complement to fundamental ratings analysis, an indicator of credit quality at short-and medium-term 

horizons and an early warning of credit events. See 

http://www.fitchratings.com/web_content/product/Market_Implied_Ratings.pdf. Traditional ratings are 

typically based on a wider range of inputs and take a longer term perspective. See also 

http://www.moodysanalytics.com/Products-and-Solutions/Credit-Research-RiskMeasurement/Quantitative-Insight/Market-Implied-Ratings.aspx; and 

http://www.insightforenterprise.com/images/_slicks/ES%20Credit%20Risk%20Indicators.pdf; and 

Sections VII.D, VII.H and VII.J of this report for further descriptions of this service.
24 

 As described in Section III of this report, Commission rules with respect to the potential 

conflicts of interest involving Ancillary Services discussed above (i) require NRSROs to disclose 

such conflicts of interest on Form NRSRO and have and enforce written policies and procedures 

to address and manage such conflicts of interest (see Section III.A above); (ii) prohibit NRSROs 

from making recommendations to an issuer about the structure of a rated security (see Section 

III.B above); (iii) prohibit NRSROs from engaging in certain acts and practices involving 

Ancillary Services (see Section III.C above); and (iv) require the reporting of certain information 

concerning Ancillary Services (see Section III.D above). 

The Staff’s recommendations and conclusions regarding the management of conflicts of 

interest associated with Ancillary Services are included in Section X of this report. 

VII. Description of NRSRO Ancillary Services and Policies and Procedures to Manage 

Potential Conflicts of Interest

Below is a general description of the types of Ancillary Services offered by NRSROs, as well 

as examples of the policies and procedures they have disclosed publicly pursuant to Rule 17g5(a) (as referred to in Section III.A of this report) to manage conflicts of interest relating to such 

Ancillary Services. The Staff received responses from the NRSROs to requests for information 

relating to this Study, including descriptions of their products and services and applicable 

policies and procedures. For purposes of this report, the Staff considered such responses and 

reviewed, as of March 31, 2013 (except as otherwise expressly noted), publicly available 

information for all the NRSROs, as well as certain non-public information as specifically 

indicated, all of which is subject to change. Although some NRSROs have internal, non-public 

policies and procedures applicable to Ancillary Services in addition to those publicly disclosed, 

such internal policies and procedures are not described below. 

The types of policies and procedures referred to below generally include separation of ratings 

and ancillary businesses, separation of analytics from commercial activities, restrictions on 

information sharing, specification of factors used to determine ratings, prohibitions on consulting 

and advisory services and prohibitions on deal structuring. Reference is made to the websites of 
25 

the various NRSROs (which are listed in footnotes at the beginning of the sections below) for a 

more complete description of the relevant products and services and policies and procedures. 

A. A.M. Best70

i. Products and Services

According to its website, A.M. Best’s rating services include--in addition to its financial 

strength ratings, issuer credit ratings and debt ratings71--an interactive credit rating service,

72 a 

rating assessment service73 and a rating evaluation service.

74 A.M. Best states that it does not 

provide consulting or advisory services.

75 

According to its Confidentiality, Firewall, Conflicts of Interest, and Securities Trading and 

Reporting Policy (the “Firewall Policy”), A.M. Best also provides communications, news and 

information services through different divisions (“non-ratings divisions”) within the NRSRO.76 

 

70 See http://www.ambest.com/. 

71 See http://www3.ambest.com/ratings/default.asp. 

72 See A.M. Best Rating Service Definitions, available at http://www.ambest.com/ratings/definitions.html. 

A.M. Best describes its interactive credit rating service as a “rating evaluation service solicited by the entity 

or issuer being rated” and that provides an opinion “regarding the creditworthiness of the entity, issuer or 

debt obligation.” 

 

73 See id. A.M. Best describes its rating assessment service to be “solicited by non-rated entities” and as 

providing “a confidential, unpublished, unmonitored point-in-time opinion of a company's rating prospects 

based on a quantitative analysis of a company’s financial statements and other related financial information 

communicated by the client to A.M. Best.” 

74 See id. A.M. Best describes its rating evaluation service to be “solicited by currently rated entities” and as 

providing “a confidential, unpublished, unmonitored point-in-time opinion(s) of the impact of one or more 

hypothetical scenarios based on an interactive quantitative and qualitative analysis of the information, 

including financial projections and other related financial information on a company's creditworthiness, 

communicated by the client to A.M. Best.” 

75 See A.M. Best Code of Conduct (Dec. 28, 2012), at 12, available at http://www.ambest.com/nrsro/code.pdf. 

76 See A.M. Best Confidentiality, Firewall, Conflicts of Interest, and Securities Trading and Reporting Policy

(Dec. 28, 2012), at 6, available at http://www.ambest.com/nrsro/Confidentialityfirewallconflictsofinterest

andsecuritiestradingandreportpolicy_c-5.pdf. 
26 

These types of services include, but are not limited to, publications entitled “Best’s Insurance 

Reports” and “Best’s Directories of Recommended Insurance Attorneys and Adjusters.”77 

ii. Policies and Procedures

 A.M. Best’s Firewall Policy relates to the protection of the ratings division and non-ratings 

divisions from any “improper influence” by one another or by any of the divisions’ clients, and

restrictions on the sharing of confidential information within A.M. Best.78 The Firewall Policy 

also prohibits ratings analysts from making proposals or recommendations regarding the design 

of structured finance products.79 It also prohibits actions which would violate Rule 17g-680 as 

well as the provision of consulting or advisory services regarding the corporate or legal structure, 

assets, liabilities or activities of rated entities.

81 

A.M. Best also has a Code of Conduct, which relates to the quality and integrity of the rating 

process and the avoidance of conflicts of interest.82 

B. DBRS83

i. Products and Services

The DBRS Core, Ancillary and Consulting Services Policy84 (the “Services Policy”) states 

that DBRS does not presently provide ancillary services, which it defines as rating-related 

 

77 See A.M. Best Products and Services, available at http://www.ambest.com/sales/default.asp. 

78 See A.M. Best Confidentiality, Firewall, Conflicts of Interest, and Securities Trading and Reporting Policy

at 6. 

79 Id. at 9.

80 Id. at 20.

81 Id. at 9.

82 See A.M. Best Code of Conduct. 

83 See http://www.dbrs.com/. 
27 

services which may include risk management services, credit risk solutions, and indices.85 Such

policy also states that DBRS does not engage in consulting or advisory services.86

 The DBRS Services Policy states that DBRS performs a variety of core rating services and 

activities, including the issuance of public and private ratings, servicer and collateral manager 

evaluations, analytics on ratings under different stress scenarios, and subscription services.87 

ii. Policies and Procedures

In its Policies and Procedures to Address and Manage Conflicts of Interest, DBRS describes

the manner in which it protects the independence of its ratings from conflicts of interest and how 

it manages potential conflicts of interest, including policies to ensure that ratings are influenced 

only by factors relevant to credit assessments.88 

DBRS also has a Code of Conduct, which relates to the quality and integrity of the rating 

process and avoidance of conflicts of interest.89 The Code of Conduct prohibits analytical 

personnel from making proposals or recommendations regarding the design of structured finance 

products that DBRS rates.90

 84 See DBRS Core, Ancillary and Consulting Services Policy, available at

http://www.dbrs.com/research/236733. 

85 Id. at 2.

86 Id. at 2.

87 Id. at 1.

88 See DBRS Policies and Procedures to Address and Manage Conflicts Of Interest, Exhibit 7 to Form 

NRSRO available at http://www.dbrs.com/about/regulatoryAffairs/nrsrodisclosures. 

89 See DBRS Code of Ethics, Exhibit 5 to Form NRSRO, available at 

http://www.dbrs.com/about/regulatoryAffairs/nrsrodisclosures. 

90 Id.
28 

C. EJR91

i. Products and Services

EJR provides credit ratings and rating analysis reports to customers on a subscription basis.92 

It also provides a distinct service involving proxy research, voting recommendations and voting 

services to a variety of institutional investors through Egan-Jones Proxy Services,

93 a different

business line within the NRSRO.94 Some of such investors are also ratings subscribers.95 EJR 

also offers a premium service to its subscribers known as “Best Credit Ideas.”96 

ii. Policies and Procedures

In Exhibits 6 and 7 to its most recent Form NRSRO, EJR discloses several types of conflicts 

of interest, which include the provision of proxy research and voting services, and states in these 

exhibits that the proxy business line is physically and electronically separate from the ratings 

services.

97 

EJR has a Code of Ethics and Business Conduct which prohibits the issuance or maintenance 

of a rating for a company “where the Firm or an associated person made recommendations to the 

obligor, issuer, underwriter or sponsor about the corporate or legal structure, assets, liabilities, or 

 

91 See http://www.egan-jones.com/. 

92 Id.

93 See http://www.ejproxy.com/. 

94 See EJR Form NRSRO Exhibits 6 and 7, at 46, available at http://www.egan-jones.com/nrsro. 

95 Id.

96 Id. 

97 Id. at 47.
29 

activities of the issuer or obligor.”98 The Code also includes, among other things, information on 

additional prohibited practices, conflicts of interest and confidential information.99

D. Fitch Ratings100

i. Products and Services

According to its Statement on Definition of Ancillary Businesses, Fitch Ratings provides 

“core” products and services including public and private ratings, credit assessments, the 

issuance of preliminary or indicative ratings and rating assessments.101 Fitch Ratings defines 

ancillary business as “any business other than the provision of independent analysis and rating 

opinions regarding a variety of risks in the financial markets.” Such statement mentions that 

“any ancillary business within the Fitch group of companies is provided by separate companies 

outside the ratings group or by separate divisions”102 and that Fitch Ratings does not provide 

advisory or consulting services.103 

 

Fitch Solutions, a non-NRSRO affiliate of Fitch Ratings and subsidiary of Fitch Group, Inc., 

the parent entity of Fitch Ratings, distributes Fitch Ratings research and ratings, financial data 

and other market-based content products.104 Fitch Solutions provides market-implied ratings, 

which include credit default swap (“CDS”) implied ratings and equity implied ratings. For 

 

98 See EJR Form NRSRO, Exhibit 5, at 35, available at http://www.egan-jones.com/nrsro. 

99 Id.

100 See http://www.fitchratings.com/web/en/dynamic/fitch-home.jsp. 

101 See Fitch Ratings Statement on Definition of Ancillary Business (Aug. 2010), at 1, available at 

http://www.fitchratings.com/web_content/credit_policy/statement_on_definition_of_ancillary_

business.pdf. 

102 Id. at 1.

103 Id.

104 See descriptions at http://www.fitchratings.com/jsp/corporate/ProductsAndServices.faces?context= 

2&detail=130. 
30 

example, the CDS-implied rating model uses daily CDS market quotes to derive implied 

ratings.105 Fitch Training, also a non-NRSRO affiliate of Fitch Ratings, is a training firm 

focused on the provision of credit and corporate finance training.106 

 

Below is an organizational chart derived from the Fitch Ratings Form NRSRO dated March 

27, 2013, which illustrates the structure of Fitch Ratings, Fitch Solutions and Fitch Training: 

ii. Policies and Procedures

Fitch Ratings has a Code of Conduct, relating to the quality and integrity of the rating 

process and avoidance of conflicts of interest. The Code of Conduct prohibits analysts from 

making proposals or recommendations regarding the design of structured finance products rated 

by Fitch Ratings.107 The Code of Conduct also prohibits the practices described in Rule 17g6.108

 

105 See http://www.fitchratings.com/jsp/corporate/ProductsAndServices.faces?context=2&detail=112. 

106 See descriptions at http://www.fitchtraining.com/en/Default.aspx. On January 23, 2013, Fitch Group 

acquired 7city Learning. Fitch is combining 7city with its Fitch Training unit to form Fitch 7city Learning. 

See http://www.fitchratings.com/creditdesk/press_releases/detail.cfm?pr_id=780601&origin=home&cm_

sp=homepage-_-FeaturedContentLink-_-Learn%20More. 

107 See Fitch Ratings Code of Conduct (Dec. 2012), at 6, available at

http://www.fitchratings.com/web_content/credit_policy/code_of_conduct.pdf. 

108 Id. at 8.
31 

Fitch Ratings’ Firewall Policy relates to Fitch Ratings, Fitch Solutions and Fitch Training 

and refers to confidentiality and the use of client information, policies and procedures so as to 

reduce the likelihood that any advisory, consulting or other ancillary business will influence 

ratings, and the separation of the ratings division from non-ratings affiliates.109

Fitch Ratings also has issued a bulletin entitled “Restrictions on Advising Issuers and 

Others,” which explains that Fitch is prohibited from providing “advice on how to achieve a 

desired credit rating” to issuers and others involved in the rating process.110 

E. HR Ratings111

i. Products and Services

From its website, HR Ratings does not appear to offer any services in addition to the issuance 

of credit ratings.112 

ii. Policies and Procedures

HR Ratings has a Code of Conduct, which concerns quality in the provision of rating 

services, transparency and standards for professional conduct and prohibits employees from 

making recommendations or proposals concerning securities offerings for which HR Ratings

 

109 See Fitch Ratings Firewall Policy (May 2012), at 2, available at

http://www.fitchratings.com/web_content/credit_policy/firewall_policy.pdf. 

110 See Fitch Ratings Restrictions on Advising Issuers and Others (Aug. 2010), available at

http://www.fitchratings.com/web_content/credit_policy/restrictions_on_advising_issuers_and_others.pdf. 

111 See http://www.hrratings.com/en/index. 

112 Due to its registration as an NRSRO in November 2012, HR Ratings is currently undergoing its first Staff 

examination pursuant to Section 15E(p)(3) of the Exchange Act.
32 

provides its rating services.113 The Code also provides for certain disclosure if HR Ratings were 

to receive income for services other than the provision of credit ratings.114

F. JCR115

i. Products and Services

JCR provides a variety of ancillary services including credit assessment services, servicer 

ratings and private credit assessments.116 JCR defines ancillary business as any business other 

than the credit rating business that is related to a credit rating action.

117 

ii. Policies and Procedures

JCR has a Code of Conduct which relates to the quality and integrity of the credit rating 

process and avoidance of conflicts of interest and includes procedures and mechanisms, with 

respect to ancillary business, to identify, eliminate, manage or minimize matters that may 

unfairly affect the assignment or the provision of credit ratings.118 JCR’s Code prohibits the 

provision of consulting services regarding the organizational structure or the structure of the 

main assets and liabilities of rated companies and securities.119 

 

113 See HR Ratings Code of Conduct (May 2012), at 30, available at

http://www.hrratings.com/pdf/lista/FormNRSRO.pdf. 

114 Id. at 17.

115 See http://www.jcr.co.jp/english/. 

116 See http://www.jcr.co.jp/english/ancillary/index.html?PHPSESSID=9e7d0ebfb5f4fe21e48db623e9c50fbf. 

117 See JCR Code of Conduct (Dec. 2012), at 12, available at

http://www.jcr.co.jp/english/criterion/pdf/coce_e20120326.pdf. 

118 Id. at 4.

119 Id. at 3.
33 

JCR also has a Basic Compliance Policy regarding measures to ensure that actual or potential 

conflicts of interest “will not have an adverse impact on the interest of investors”.120 JCR’s 

Conflicts of Interest Management Policy requires a separation of its ratings division from its 

departments and divisions that manage sales and ancillary business revenues, and contains 

certain measures designed to prevent conflicts of interest associated with its ancillary 

business.121 

G. Kroll122

i. Products and Services

Kroll “assigns credit ratings to issuers and their obligations and, through its Subscription 

Rating Service (SRS), financial strength ratings to financial institutions, corporations and 

sovereigns.”123 Kroll also provides commercial mortgage-backed securities servicer evaluations, 

which are reviews of all entities that service commercial mortgage-backed securities transactions 

that Kroll rates or is likely to rate in the future.

124 

ii. Policies and Procedures

Kroll has a Code of Conduct, which relates to the quality and integrity of the ratings process 

and avoidance of conflicts of interest, and prohibits analysts from making proposals or 

recommendations regarding the design of structured finance products that the company rates.125 

 

120 See JCR Basic Compliance Policy, at 23, available at 

http://www.jcr.co.jp/english/nrsro/pdf/Update_20130131.pdf. 

121 See JCR Conflicts of Interest Management Policy, at 31-32, available at

http://www.jcr.co.jp/english/nrsro/pdf/Update_20130131.pdf. 

122 See https://www.krollbondratings.com/. 

123 https://www.krollbondratings.com/ratings/scales. 

124 See https://www.krollbondratings.com/products/cmbs-servicer-evaluations. 

125 See Kroll Code of Conduct (Oct. 2012), at 6, available at

https://www.krollbondratings.com/show_report/83. 
34 

The Code of Conduct also provides for certain disclosures if the company receives compensation 

from a rated entity unrelated to its ratings service.126

H. Moody’s127

i. Products and Services

Moody’s Policy for Ancillary and Other Permissible Services states that Moody’s provides 

“Other Permissible Services” but does not currently offer “Ancillary Services”128 (such 

“Ancillary Services” appear to be provided by Moody’s Analytics, which is described below). 

“Other Permissible Services,” which are described in such policy as being distinct from the 

credit rating services offered by Moody’s129 include bond fund ratings, credit estimates, 

indicative assessment services130 and rating assessment services,

131 as defined in a description of 

Moody’s rating symbols and definitions.132 Such policy also states that Moody’s does not 

provide consulting services or advisory services regarding the corporate or legal structure, assets, 

liabilities or activities of a rated entity.

133 

 

126 Id. at 8.

127 See http://www.moodys.com/Pages/atc.aspx. 

128 Moody’s defines ancillary services as those products and services that are not Credit Rating Services, and 

which are market forecasts, estimates of economic trends, pricing analysis, or other general data analysis, 

as well as related distribution services. See Moody’s Policy for Ancillary and Other Permissible Services

(Aug. 2012), at 2, available at http://www.moodys.com/sites/products/ProductAttachments/Compliance/9-

9-2011/SP13347_Policy%20for%20Ancillary%20and%20Other%20Permissible%20Services.pdf. 

129 See Moody’s Rating Symbols and Definitions (Feb. 2013), available at

http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004. 

130 See id. Indicative assessment services are defined as “[a] confidential, unpublished, unmonitored, point-intime opinion of the potential Credit Rating(s) of, and based solely on, one or more hypothetical scenario(s) 

communicated to Moody’s in writing by an applicant in relation to an entity/issuer that does not currently 

have a public Credit Rating from MIS.” 

131 See id. Rating assessment services are defined as “[a] confidential, unpublished, unmonitored, point-intime opinion of the potential impact on the Credit Rating(s) of one or more hypothetical Scenario(s) 

communicated to MIS in writing by a Rated Entity.” 

132 See id. for a complete list of other services identified in the policy as permissible services.

133 See Moody’s Policy for Ancillary and Other Permissible Services at 1.
35 

Moody’s Analytics, which is a subsidiary of Moody’s Corporation, the parent entity of 

Moody’s, and therefore is not part of the NRSRO, performs non-rating commercial activities134

including market-implied ratings, financial institutions research and performance data 

services.135 According to the website of Moody’s Analytics, a market-implied rating “translates 

prices from the [CDS], bond, loan and equity markets into standard [Moody’s] ratings 

language,”136 and Moody's ratings analysts use market-implied ratings to identify material and 

systematic gaps between Moody’s ratings and the ratings implied by market data.

137 

Below is an organizational chart derived from the Moody’s Form NRSRO dated March 29, 

2013, which illustrates the structure of Moody’s and Moody’s Analytics: 

 

134 See Moody’s Corporation 10-K for the year ended December 31, 2012, available at

http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001059556&type=10-

k&dateb=&owner=include&count=40. 

135 See http://www.moodysanalytics.com/products-and-solutions/az-product-list.aspx#F. 

136 See http://www.moodysanalytics.com/~/media/Brochures/Credit-Research-Risk-Measurement/QuantativeInsight/MIR/MIR-Brochure.ashx. 

137 See http://www.moodys.com/sites/products/ProductAttachments/MIRFrequentlyAskedQuestions.pdf. 
36 

ii. Policies and Procedures

Moody’s Code of Professional Conduct relates to the quality and integrity of the rating 

process and the avoidance and management of conflicts of interest. It includes provisions 

regarding the separation of its ratings services from other businesses that may present a conflict 

of interest and refers to procedures and mechanisms regarding conflicts of interest associated 

with ancillary services and other permissible services.

138 The Code also provides for certain 

disclosures if Moody’s receives compensation unrelated to its ratings service.139

Moody’s also has a policy which pertains to the physical, legal and operational separation of 

Moody’s from Moody’s Analytics and the sharing of confidential information.140 

Moody’s Policy Banning Recommendations Associated with Credit Ratings prohibits the 

issuance or maintenance of a credit rating where any Moody’s Corporation141 employee made 

recommendations to the rated entity or its agent about the corporate or legal structure, assets, 

liabilities or activities of the rated entity, on how to achieve a better rating.142 

 

138 See Moody’s Code of Professional Conduct (June 2011), at 10, available at

http://www.moodys.com/uploadpage/Mco%20Documents/Documents_professional_conduct.pdf. 

139 Id.

140 See Moody’s MIS-MA Separation Policy (Sept. 2011), at 1, available at 

http://www.moodys.com/sites/products/ProductAttachments/Compliance/9-9-2011/SP13372_MIS%20-

%20MA%20Separation%20Policy_Sept_06_2011%20Final.pdf. 

141 Moody’s Corporation refers to Moody’s Corporation and all its subsidiaries.

142 See Moody’s Policy Banning Recommendations Associated with Credit Ratings (Sept. 2011), at1, available 

at http://www.moodys.com/sites/products/ProductAttachments/nrsro/SP13375.pdf. 
37 

I. Morningstar143

i. Products and Services

In addition to providing credit ratings for residential mortgage-backed securities and 

commercial mortgage-backed securities,144 Morningstar also offers, through two different 

business groups within the NRSRO, (a) operational risk assessment services to institutional 

investors which analyze the operational risks associated with transaction participants,145 and (b) 

research/advisory services, which includes Private Client Services, and includes products and 

services such as portfolio analysis, a commercial mortgage backed securities due diligence 

workstation and synthetic benchmarking.146 

ii. Policies and Procedures

 Morningstar’s Code of Conduct relates to the quality and integrity of the rating process and 

the avoidance of conflicts of interest, and refers to policies and procedures for managing

conflicts of interest between Morningstar’s credit rating business and its other businesses.147 

 

 Morningstar’s Confidential Information and Analytic Firewalls Policy pertains to the 

protection of confidential information and the prevention of improper exchange of such 

 

143 See https://ratingagency.morningstar.com/RPLogin.aspx. 

144 See Morningstar Exhibit 2 to Form NRSRO, available at

https://ratingagency.morningstar.com/PublicDocs/Exhibit%202.pdf. 

145 See https://ratingagency.morningstar.com/RPLogin.aspx. 

146 See Morningstar’s Confidential Information and Analytic Firewalls Policy, Exhibit 3 Form NRSRO, at 

139, available at https://ratingagency.morningstar.com/PublicDocs/NRSRO%20Application.pdf. Synthetic 

benchmarking is a “service where the performance of a pool of residential mortgages, such as the collateral 

of a securitization or whole loan portfolio, is compared to similar loans in the Morningstar RMBS 

database.” See https://ratingagency.morningstar.com/PublicDocs/RMBS%20Services%20Brochure.pdf. 

147 See Morningstar’s Code of Conduct, Exhibit 5 Form NRSRO, at 159, available at

https://ratingagency.morningstar.com/PublicDocs/NRSRO%20Application.pdf. 
38

information. The policy also relates to the participation by rating analysts in consulting or 

advisory services.

148

Morningstar’s Code of Ethics states that Morningstar is prohibited from issuing a rating 

where Morningstar made recommendations about the corporate or legal structure, assets, 

liabilities or activities of an obligor or security.149 

J. S&P150

i. Products and Services

According to its Ancillary and Other Services Policy,151 in addition to its products and 

services related to the issuance of credit ratings, S&P provides and sells “Ancillary Services” and 

“Other Services.” S&P’s Glossary of Terms also refers to services entitled “Credit Assessments” 

and “Credit Estimates”152 and its website refers to “Ratings Evaluation Services.”153 As part of 

 148 See Morningstar’s Confidential Information and Analytic Firewalls Policy, at 144.

149 See Morningstar’s Code of Ethics, Form NRSRO Exhibit 7, at 173, available at

https://ratingagency.morningstar.com/PublicDocs/NRSRO%20Application.pdf.

150 See http://www.standardandpoors.com/home/en/us.

151 See S&P’s Ancillary and Other Services Policy (Sept. 2011), at 1, available at

http://www.standardandpoors.com/ratings/form-nrsro/en/us. As defined in S&P’s Glossary of Terms, 

“ancillary service” is defined as a “product or service that Rating Services provides or sells that is not a 

Credit Rating or Credit Rating Activity and is either a market forecast, an estimate of economic trends, a 

pricing analysis, other general data analysis, or distribution services related to a Credit Rating, a market 

forecast, an estimate of economic trends, a pricing analysis, or general data analysis.”

152 See S&P’s Glossary of Terms (Jan. 2013) available at http://www.standardandpoors.com/ratings/formnrsro/en/us and S&P’s Ratings Definitions (June 2012), available at

http://www.standardandpoors.com/ratings/form-nrsro/en/us. As defined in Rating Definitions, a Credit 

Estimate is “an indication, provided to a third party, of the likely Standard & Poor's issue or issuer credit 

rating on an unrated obligation or obligor” and a Credit Assessment is “an indicator of Standard & Poor's 

opinion of creditworthiness.”

153 “Ratings Evaluation Services” are described as “an analytical tool for corporations that are considering 

strategic or financial initiatives that could impact its [sic] creditworthiness. More specifically, this service 

allows corporations to assess the potential ratings impact of different types of debt.” See

http://www.standardandpoors.com/ratings/corporates/en/us/.
39 

its EU regulatory disclosures, S&P considers “Credit Assessments” and “Credit Estimates,” as 

performed by certain of its European business operations, to be part of “Other Services,” for 

purposes of the applicable European regulations.154 

S&P Capital IQ, which is not part of the registered NRSRO, and is described as a separate 

segment of The McGraw-Hill Companies,155 provides a variety of financial and analytical

products to a variety of clients.156 Examples of products and services offered by S&P Capital IQ 

include market derived ratings analytics, CreditModel, and Global Credit Portal.157 S&P Capital 

IQ also provides Market Derived Signals (MDS) that are derived from a statistical model that 

evaluates credit default swaps.158 

 

154 See S&P’s Product Descriptions available at http://www.standardandpoors.com/ratings/european-unionregulatory-disclosures/en/eu. 

155 See Exhibit 4 of S&P’s Form NRSRO, available at http://www.standardandpoors.com/ratings/formnrsro/en/us. Such Exhibit describes S&P as a business unit within Standard & Poor’s Financial Services 

LLC, a company wholly-owned by The McGraw-Hill Companies, Inc. (“McGraw-Hill”). McGraw-Hill 

completed the sale of its McGraw-Hill Education business on March 22, 2013. McGraw-Hill was 

subsequently renamed McGraw Hill Financial, Inc. on May 1, 2013. See McGraw Hill Financial, Inc. 10-

Q for the quarter ended June 30, 2013 available at

http://www.sec.gov/Archives/edgar/data/64040/000006404013000015/mhp-2013630xq2.htm and McGraw 

Hill Financial, Inc. Form 8-K available at 

http://www.sec.gov/Archives/edgar/data/64040/000119312513200788/d529200d8k.htm. 

156 See https://www.capitaliq.com/home.aspx. 

157 See http://www.standardandpoors.com/products-services/main/en/us. 

158 See http://www.insightforenterprise.com/images/_slicks/ES%20Credit%20Risk%20Indicators.pdf. 
40 

Below is an organizational chart derived from the S&P’s Form NRSRO dated March 27, 

2013, which illustrates the structure of S&P Ratings and S&P Capital IQ:

159

ii. Policies and Procedures

S&P has a Code of Conduct relating to the quality and integrity of the rating process and the 

avoidance of conflicts of interest.160 S&P also has an Ancillary and Other Services Policy

relating to the prevention of confusion between its credit rating activities and its ancillary 

services or other services, and the implementation of appropriate measures to manage actual or 

potential conflicts of interest.

161

 

159 See supra text accompanying note 155. 

160 See S&P’s Code of Conduct (June 2012), available at http://www.standardandpoors.com/ratings/formnrsro/en/us. 

161 See S&P’s Ancillary and Other Services Policy at 1. 
41 

S&P’s Roles and Responsibilities Policy refers to prohibitions on rating analysts and 

employees in commercial activities participating in each other’s activities,162 and its 

Confidentiality, Conflicts and Firewall Policy relates to the sharing of confidential information

and prohibitions against employees engaging in certain practices involving an issuer’s purchase 

of any other service or product of S&P or [The] McGraw-Hill [Companies].163 S&P’s Policy 

Against Structuring Transactions prevents employees from structuring transactions and making 

recommendations to an issuer related to any security it may rate for that issuer.

164 

VIII. NRSRO Enforcement of Policies and Procedures; NRSRO Exam Report Findings 

A. NRSRO Enforcement of Policies and Procedures

Some of the NRSROs reported that they take certain of the actions below in order to selfenforce the policies and procedures with respect to Ancillary Services, which are described in 

Section VII of this report. The information was provided to the Staff by the NRSROs 

specifically in connection with the Study.

(a) Internal audits to check for compliance with, and the effectiveness of, policies and 

procedures; 

(b) Employee training with respect to the applicable policies and procedures; 

(c) Maintenance of a “firewall log” to track collaboration between ratings and nonratings employees;

(d) Reviews of employee emails;

(e) Random interviews with employees to verify compliance with policies and 

procedures; 

 

162 See S&P’s Roles & Responsibilities Policy (May 2012), at 1, available at

http://www.standardandpoors.com/ratings/form-nrsro/en/us. 

163 See S&P’s Confidentiality, Conflicts and Firewall Policy (Jan 2012), at 2, available at 

http://www.standardandpoors.com/ratings/form-nrsro/en/us. 

164 See S&P’s Policy Against Structuring Transactions (Sept. 2010), at 1, available at

http://www.standardandpoors.com/ratings/form-nrsro/en/us.
42 

(f) Employee confirmations at rating committee meetings that conflicts of interest did 

not influence rating decisions; and

(g) Maintenance of a list to track clients with ancillary service business in excess of a 

certain amount, which is consulted before credit rating activity may be accepted. 

B. NRSRO Exam Report Findings

Based on examinations performed to date, essential findings related to the conflict of interest 

concerning Ancillary Services were included in both the 2011 NRSRO Exam Report and 2012 

NRSRO Exam Report.165 

In the 2011 NRSRO Exam Report, the Staff found that two of the smaller NRSROs appeared 

to have weak policies and procedures to disclose and manage conflicts of interest associated with 

certain ancillary businesses. The Staff recommended that each such NRSRO fully disclose and 

implement policies and procedures to manage such conflicts.

According to the 2011 NRSRO Exam Report, one of such NRSROs failed to disclose and 

implement policies and procedures to manage conflicts of interest associated with an ancillary 

service. The NRSRO considered such service to be a core rating service rather than an ancillary 

service, and as a result, did not disclose or establish policies and procedures to manage the 

relevant conflict of interest as required by Rule 17g-5(a). The NRSRO subsequently adopted 

policies and procedures in response to the examination finding. The other NRSRO was 

determined by the Staff to have weak policies and procedures to manage conflicts of interest 

associated with an ancillary service because it was unclear how the ratings business was kept 

separate from the ancillary service business due to the physical proximity of employees from 

both businesses. The NRSRO has not yet appropriately addressed this issue and the Staff is

handling this issue through the examination process. 

 

165 See supra notes 9 and 11.
43 

Additionally, in the 2011 NRSRO Exam Report, the Staff found that one of the smaller 

NRSROs appeared to have weak barriers between its ratings analysts and employees of a

business unit providing an ancillary service posing a potential conflict of interest. At such

NRSRO, ratings analysts shared office space with employees of the ancillary business unit 

providing investment advice. The Staff considered the potential conflicts between the interests 

of investment advice clients and ratings analytics to be significant and that the potential for the 

inappropriate dissemination of material nonpublic information among the ratings analysts and 

investment advice employees was significantly increased due to the sharing of office space. The 

Staff recommended that the NRSRO implement stronger barriers between such lines of business, 

including physical separation of the employees. 

In the 2012 NRSRO Exam Report, the Staff found that one of the smaller NRSROs appeared 

to have insufficient policies and procedures to manage conflicts of interest associated with an

ancillary service and recommended that the NRSRO enhance and adhere to its policies, 

procedures, and internal controls to effectively manage such conflict of interest and adequately 

disclose it in Exhibit 7 of Form NRSRO. In such case, the Staff noted that certain entities are 

customers of both the ratings and ancillary service businesses but that improvements were 

needed in the NRSRO’s recordkeeping of the clients in the ancillary service business, 

maintenance of physical separation of the relevant employees, adherence to policies and 

procedures and creation of effective policies and procedures to manage the conflict of interest. 

The Staff is examining the NRSRO’s response to this finding in the NRSRO’s 2013 examination 

and will include any further essential findings in an NRSRO Exam Report. 

IX. Comparable Conflicts of Interest

The 2003 Report compared the conflicts of interest relating to NRSROs’ provision of 

ancillary services to the conflicts of interest addressed by Sarbanes-Oxley (i.e., involving 

accounting firms offering non-audit services and research analysts seeking additional business 
44 

for their investment banking firms through their recommendations).166 Sarbanes-Oxley was 

enacted in part to address the risks to auditor independence which resulted from accounting firms 

providing certain non-audit services to their public company audit clients. Sarbanes-Oxley 

prohibited accounting firms from providing a specified list of non-audit services to their public 

audit clients.167 

Sarbanes-Oxley also addressed the conflicts of interest that arose when securities analysts 

recommended securities in research reports and public appearances in order for their firms to 

obtain additional investment banking business. Section 501 of Sarbanes-Oxley requires, among 

other things, the establishment of structural and institutional safeguards within registered brokers 

or dealers to assure that securities analysts are separated from review, pressure or oversight by 

employees whose involvement in investment banking activities might potentially bias the 

analysts’ judgment or supervision.168 

Similarly, the Commission’s Global Analyst Research Settlement of 2003 originally required 

certain investment firms, among other actions, to separate research from investment banking 

activities, including by physical separation, separate reporting lines, separate legal and 

compliance staffs and separate budgeting processes.169

 

166 See Report on the Role and Function of Credit Rating Agencies in the Operation of the Securities Markets, 

Commission staff.

167 Section 201 of Sarbanes Oxley – Services Outside the Scope of Practice of Auditors. 15 U.S.C. 78j-1 

(2006) (banning non-audit services such as bookkeeping, designing financial information systems, actuarial 

services, internal audit outsourcing services and management functions or human resources).

168 Section 501 of Sarbanes-Oxley.

169 See SEC Fact Sheet on Global Analyst Research Settlements available at

http://www.sec.gov/news/speech/factsheet.htm. On March 15, 2010, Judge William H. Pauley III of the 

U.S. District Court for the Southern District of New York approved various modifications to the final 

judgments entered against the firms covered by such settlements; however, of the activities mentioned 

above, the requirements for physical separation of research analysts and investment banking, and separate 

budgeting processes, remained in place. See SEC v. Bear, Stearns & Co., No. 03 Civ. 2937 (WHP), slip 

op. at Addendum A § I.3 (S.D.N.Y. Mar. 15, 2010).
45

Academic commentary is mixed on whether the NRSROs’ provision of Ancillary Services 

poses the same potential for conflicts of interest as the pre-Sarbanes-Oxley accounting firms’ 

provision of consulting services. One commenter concludes that ancillary services provided by 

credit rating agencies are a “nonissue” because they contribute to an “insignificant fraction” of 

the credit rating agencies’ total revenue,170 “fees from the average credit rating client constitute 

only a small fraction of each [credit rating agency’s] total revenue”171 and the rating agencies 

have “firewalls and self-regulations in place to prevent any conflicts of interest from negatively 

impacting the integrity of their rating processes.”172 However, another commenter disagrees, 

arguing that the percentage of revenue contributed by any single rating client, as a “metric for 

independence,” does not address whether the audit team [or credit analyst] is actually 

independent,173 and observing that Enron accounted for only one percent of its auditor’s total 

revenues.174

According to information reported by the NRSROs to the Commission for purposes of the 

Dodd-Frank Independence Study, for the fiscal year ended in 2011, it appears that: (i) four 

NRSROs did not have any revenue attributable to products and services in addition to NRSRO 

ratings; (ii) two NRSROs had less than 10% of total NRSRO revenues that were attributable to

products and services in addition to NRSRO ratings; and (iii) four NRSROs had between 

approximately 10% and 28% of total revenues that were attributable to products and services in 

addition to NRSRO ratings. In addition, for NRSROs which have reported revenue annually 

 170 See Nicole Neuman, A Sarbanes-Oxley for Credit Rating Agencies? A Comparison of the Roles Auditors’ 

and Credit Rating Agencies’ Conflicts of Interests Played in Recent Financial Crises, 12 U. Pa. J. Bus. L. 

921 (2010). For this conclusion, the author relies on the 2003 Report. In the 2003 Report, ancillary 

services were described as representing a “very small percentage” of total NRSRO revenues, with the 

rating agencies noting that ancillary services are an “insignificant” aspect of their businesses, so that 

potential conflicts of interest are “immaterial.” See 2003 Report, at 43.

171 Id. at 942.

172 Id. at 922.

173 Hatchett at 420, n. 95. In making this argument, Hatchett quotes an article in the Villanova Law Review 

which discusses the independence of the audit team. Hatchett includes the bracketed reference to “credit 

analyst” in order to analogize between rating analysts and auditors.

174 Id. at 420. 
46 

since 2007 (which is the first year such information was required to be reported to the 

Commission) under Rule 17g-3(a)(3)(iv),175 such revenues have for the most part either declined 

or remained steady. The reported information referred to above reflects the categorizations of 

products and services used by the NRSROs which, as indicated in Section VI.B of this report, 

differ among the NRSROs and may be less inclusive than the definition of Ancillary Services 

used in this report. 

X. Conclusions and Recommendations

The essential findings (which are limited in number) in the NRSRO Exam Reports relating to 

certain NRSROs’ management of conflicts of interest involving Ancillary Services do not 

suggest that NRSROs generally have been unable to manage such conflicts of interest through 

their existing policies and procedures. Accordingly, at this time, the Staff does not believe that it 

is warranted to recommend to the Commission changes to the rules on an NRSRO’s providing 

Ancillary Services to issuers for which it also provides a rating.

176 

Notwithstanding the foregoing, the Staff will continue to consider and monitor the potential 

conflicts of interest posed by the provision of Ancillary Services to issuers. According to 

information reported to the Commission for purposes of the Dodd-Frank Independence Study, 

four of the NRSROs had 2011 fiscal year revenues attributable to products and services in 

addition to NRSRO ratings (based on the NRSROs’ own classification of such products and 

services) ranging between approximately 10% and 28% of total revenue. As suggested in 

Section IX of this report,177 conflicts of interest may exist even for clients representing a small 

percentage of total NRSRO revenues. Also, a particular client might be very important to the 

business conducted by a specific office of, or a business line within, an NRSRO even if it 

 

175 See the last paragraph of Section III.D.i of this report. Rule 17g-3(a)(3)(iv) requires reporting of “all other 

services and products” besides credit ratings determinations and certain other items. 

176 If any such changes to the rules are to be recommended in the future, the Staff believes that they should 

address the provision of Ancillary Services by non-NRSRO affiliates.

177 Hatchett at 420.
47 

represents a small percentage of the NRSRO’s overall revenues. Finally, it is possible that 

Ancillary Services may experience future growth, even though revenues reported by NRSROs 

under Rule 17g-3(a)(3)(iv)178 appear to have either declined or remained steady over the past six 

years. 

Regardless of how they categorize Ancillary Services and report the associated revenue179, 

NRSROs must manage conflicts of interest involving Ancillary Services in accordance with the 

applicable regulatory requirements, including those in Section 15E(h) and Rule 17g-5(a) of the 

Exchange Act. The Commission’s examination function is a vital tool to assess how well the 

NRSROs are complying with such requirements, as well as providing an opportunity to observe 

whether actual conflicts of interest exist. 

Through the NRSRO examination process, essential findings are communicated to the 

NRSROs and the Staff monitors NRSRO responsiveness to suggested remedial actions. 

Potential violations of U.S. securities laws discovered in NRSRO examinations have been and 

may in the future be referred for potential enforcement action. In addition, essential findings are 

communicated to the public through the NRSRO Exam Reports. 

In order to assess whether to recommend to the Commission in the future changes to the rules 

on the provision of Ancillary Services by NRSROs to rated entities, the Staff will: (a) continue 

to monitor the revenue information received from NRSROs regarding Ancillary Services, (b) 

conduct the required annual examinations of each of the NRSROs to review their management of 

conflicts of interest (including those associated with Ancillary Services) and (c) specifically 

examine whether NRSROs may have deviated from rating procedures or methodologies in 

performing ratings of issuers that provide non-ratings revenue to the NRSRO or its affiliates. 

 

178 See the last paragraph of Section IX of this report.

179 As indicated in Sections VI.B and IX of this report, the differing definitions and categories used by 

NRSROs to describe Ancillary Services may result in either over- or under-inclusiveness by NRSROs in 

reporting revenue information regarding such services and make it difficult to compare such information 

among the NRSROs. The revenue information reported under Rule 17g-3(a)(3)(iv) does not include 

revenues of non-NRSRO affiliates which provide similar services (although such information may be 

available in the public securities filings of certain NRSROs), or indicate the extent to which rating services 

customers also purchase Ancillary Services or similar services from non-NRSRO affiliates.
48 

The Staff will continue to report, in its NRSRO Exam Reports, these and other findings and 

recommendations made to the NRSROs with respect to such matters, and will consider whether 

to make additional recommendations concerning the management of conflicts of interest 

involving Ancillary Services if the Staff deems appropriate based on examination results.