SECURITIES AND EXCHANGE COMMISSION

(Release No. 34-98590)

September 28, 2023

ORDER GRANTING TEMPORARY CONDITIONAL EXEMPTION FOR JAPAN 

CREDIT RATING AGENCY, LTD. FROM CERTAIN REQUIREMENTS OF SECTION 

15E(t) OF THE SECURITIES EXCHANGE ACT OF 1934 

I. Introduction

Section 15E(t) of the Securities Exchange Act of 1934 (“Exchange Act”) requires that each 

nationally recognized statistical rating organization (“NRSRO”) implement certain corporate 

governance measures.1

 Specifically, Section 15E(t)(1) requires each NRSRO to have a board of 

directors, and Section 15E(t)(3) sets forth specified, mandatory duties of such board of directors.2

Section 15E(t)(2)(A) provides that at least half of the board of directors, but not fewer than two 

members thereof, shall be independent of the NRSRO, and that a portion of the independent 

directors shall include users of ratings from an NRSRO.3

 Section 15E(t)(2)(C) provides that the 

compensation of the independent members of the board of directors of the NRSRO shall not be 

linked to the business performance of the NRSRO, and shall be arranged so as to ensure the 

independence of their judgment. Such section also provides that the term of office of the 

1 15 U.S.C. 78o-7(t).

2 Section 15E(t)(3) provides that in addition to the overall responsibilities of the NRSRO’s board of directors, the 

board shall oversee: (a) the establishment, maintenance, and enforcement of policies and procedures for 

determining credit ratings; (b) the establishment, maintenance, and enforcement of policies and procedures to 

address, manage, and disclose any conflicts of interest; (c) the effectiveness of the internal control system with 

respect to policies and procedures for determining credit ratings; and (d) the compensation and promotion policies 

and practices of the NRSRO.

3 Section 15E(t)(2)(B) provides that in order to be considered independent, a member of the board of directors of an 

NRSRO: (1) may not, other than in his or her capacity as a member of the board or any committee thereof: (a) 

accept any consulting, advisory, or other compensatory fee from the NRSRO; or (b) be a person associated with 

the NRSRO or with any affiliated company thereof; and (2) shall be disqualified from any deliberation involving a 

specific rating in which the independent board member has a financial interest in the outcome of the rating.
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independent directors shall be for a pre-agreed fixed period, not to exceed five years, and shall not 

be renewable. 

Section 36 of the Exchange Act authorizes the Commission, by rule, regulation, or order, to 

exempt, either conditionally or unconditionally, any person, security, or transaction, or any class or 

classes of persons, securities, or transactions, from any provision of the Exchange Act or any rule 

or regulation thereunder, to the extent that such exemption is necessary or appropriate in the public 

interest, and is consistent with the protection of investors.4

II. Exemption Request of Japan Credit Rating Agency, Ltd. 

Japan Credit Rating Agency, Ltd. (“JCR”) is a credit rating agency registered with the 

Commission as an NRSRO under Section 15E of the Exchange Act for the classes of credit ratings 

described in clauses (i) through (iii) and clause (v) of Section 3(a)(62)(A) of the Exchange Act.5 

On August 20, 2015, the Commission granted JCR a three-year, conditional exemption, pursuant 

to Exchange Act Section 36, allowing JCR to satisfy the requirements of Exchange Act Section 

15E(t)(2) and (t)(3) through its supervisory committee.6 On August 17, 2018, pursuant to 

Exchange Act Section 36, the Commission granted JCR a subsequent three-year conditional 

exemption, that renewed for an additional two years in accordance with its terms, allowing JCR to 

satisfy the requirements of Exchange Act Section 15E(t)(2) and (t)(3) through its supervisory 

committee.

7

 

4

 15 U.S.C. 78mm.

5

 On Sept. 24, 2007, the Commission issued an order granting JCR registration as an NRSRO for the classes of 

credit ratings described in clauses (i) through (v) of Section 3(a)(62)(A) of the Exchange Act. On Oct. 18, 2010, 

JCR submitted to the Commission a notice of withdrawal from registration in the class of credit ratings described 

in clause (iv) of such section, and such withdrawal became effective on Dec. 2, 2010.

6

 See Order Granting Temporary Conditional Exemption for Japan Credit Rating Agency, Ltd. from Certain 

Requirements of Section 15E(t) of the Securities Exchange Act of 1934, Release No. 34-75747.

7

 See Order Granting Temporary Conditional Exemption for Japan Credit Rating Agency, Ltd. from Certain 

Requirements of Section 15E(t) of the Securities Exchange Act of 1934, Release No. 34-83884 (“2018 order”).
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JCR has requested a continuation of such exemption on the basis that Japanese law 

applicable to credit ratings agencies registered in Japan, including JCR, imposes requirements for 

strong independent oversight of credit rating agencies on the supervisory committee, a body 

separate from the board of directors.

Specifically, JCR has represented to the Commission that Japanese law requires (1) all 

Japanese credit rating agencies to adopt certain control systems for ensuring the “fair and 

appropriate performance” of their credit rating business, including establishment of a “supervisory 

committee” as a Japanese credit rating agency’s internal oversight body and (2) at least one-third 

of the supervisory committee members (or at least two where there are three or fewer members) to 

be “independent members” of the supervisory committee, and prohibits the directors of the 

Japanese credit rating agency from serving as independent members.8

JCR also represented to the Commission that it has established processes to ensure 

compliance with the conditions in the 2018 order and that its supervisory committee fulfills the 

functional equivalent of the requirements applicable to an NRSRO’s board of directors under 

Exchange Act Section 15E(t)(2) and (t)(3). For example, JCR represented to the Commission that: 

(1) two of the four supervisory committee members are independent members and one of the 

independent members is a user of ratings; (2) the supervisory committee independent members 

receive no prohibited compensatory fees, are not associated with JCR or any of its affiliated 

companies, and are disqualified from deliberation involving a rating where the member has a 

8 JCR also represented to the Commission that while Japanese law may not expressly prohibit a Japanese credit 

rating agency from establishing two separate internal oversight bodies where the board of directors fully complies 

with the requirements set forth in Exchange Act Section 15E(t), such redundant arrangement would, among other 

things, be inconsistent with the spirit of the Japanese law since Japanese law was intended for non-director 

independent members of the supervisory committee to have the applicable oversight responsibilities.
4

financial interest in the outcome of the rating; and (3) the supervisory committee independent 

members receive no prohibited compensation and have no more than a five-year term of office.

III. Discussion

Section 15E(p) of the Exchange Act, as added by Section 932(a)(8) of the Dodd-Frank 

Wall Street Reform and Consumer Protection Act,9 requires Commission staff to conduct an 

examination of each NRSRO at least annually. The 2018 order states that Commission staff will 

review the activities of the supervisory committee during JCR’s annual examination and may also 

review such activities at any other time. Commission staff examined JCR’s satisfaction of the 

conditions in the original and 2018 order as part of each annual examination conducted since 2016

and has determined that JCR currently satisfies such conditions.

Accordingly, the Commission finds, based on such determination and on JCR’s 

representations referred to in Section II above, that it is appropriate in the public interest and is 

consistent with the protection of investors to grant JCR a temporary, conditional exemption, 

allowing JCR to satisfy the requirements of Section 15E(t)(2) and Section 15E(t)(3) through the 

supervisory committee, subject to the conditions specified below. In addition, Commission staff 

will continue to examine JCR’s satisfaction of the conditions to this order set forth in Section IV 

below. If the conditions are not being fulfilled to the staff’s satisfaction, the staff will consider 

whether to make recommendations to the Commission, as appropriate.10

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

10 This order is based upon the representations made by JCR to the Commission in its exemptive request and 

supporting materials, including representations regarding Japanese law. It is the Commission’s understanding that 

it is standard practice for credit rating agencies registered in Japan to appoint supervisory committee members to 

an initial term of two years, and that members commonly serve multiple terms. In the event of any changes to, or 

omissions in, the facts or circumstances on which this order is based, or for any reason in its own discretion, the 

Commission may modify, suspend, or terminate, or otherwise restrict, the terms of this order.
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IV. Conclusion

For the foregoing reasons, the Commission finds that it is appropriate in the public interest 

and consistent with the protection of investors to grant JCR a temporary, conditional exemption 

allowing JCR to satisfy the requirements of Section 15E(t)(2) and Section 15E(t)(3) of the 

Exchange Act through the supervisory committee. 

ACCORDINGLY, pursuant to Section 36 of the Exchange Act,

IT IS HEREBY ORDERED that JCR is exempt from the requirements of Exchange Act 

Section 15E(t)(2) and Section 15E(t)(3) until October 30, 2026, subject to the following 

conditions:

(1) JCR will maintain a supervisory committee that meets applicable standards and 

requirements under Japanese law;

(2) JCR will require the supervisory committee to, and the supervisory committee will,

fulfill all of the duties mandated by Exchange Act Section 15E(t)(3); 

(3) JCR will promptly notify Commission staff of any changes to applicable Japanese law 

or regulations and to its internal supervisory committee rules and will provide a copy 

of the updated supervisory committee rules to the Commission staff upon request;

(4) Any changes to applicable Japanese law or regulations, or to JCR’s internal 

supervisory rules, do not conflict with the conditions of this order;

(5) At least one of the independent members of the supervisory committee will be a user of 

ratings;

(6) At least half of the supervisory committee, but no fewer than two members, will be 

independent of the NRSRO, as defined in Exchange Act Section 15E(t)(2)(B);
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(7) The independent members of the supervisory committee will each serve for a total term 

of no more than five years;

(8) The compensation of the independent members of the supervisory committee will not 

be linked to the business performance of JCR and will be arranged so as to ensure the 

independence of their judgment; 

(9) The deliberations of the supervisory committee will be recorded with sufficient 

specificity to enable examination by Commission staff upon request; 

(10) JCR will promptly notify Commission staff of any changes in the facts and 

circumstances contained in its representations;

(11) JCR will promptly provide Commission staff with copies of all reports produced by 

the supervisory committee; and

(12) JCR will appropriately address the Commission staff’s recommendations in each

annual Section 15E(p) examination and any other examinations conducted by 

Commission staff.

By the Commission.

Vanessa A. Countryman,

Secretary.