I 

109TH CONGRESS 

1ST SESSION H. R. 2990 

To improve ratings quality by fostering competition, transparency, and 

accountability in the credit rating agency industry. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 20, 2005 

Mr. FITZPATRICK of Pennsylvania introduced the following bill; which was 

referred to the Committee on Financial Services 

A BILL 

To improve ratings quality by fostering competition, transparency, and accountability in the credit rating agency 

industry. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE; REFERENCES. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Credit Rating Agency Duopoly Relief Act of 2005’’. 

6 (b) REFERENCES.—Except as otherwise expressly 

7 provided, whenever in this Act an amendment or repeal 

8 is expressed in terms of an amendment to, or repeal of, 

9 a section or other provision, the reference shall be consid-
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1 ered to be made to a section or other provision of the Secu2 rities Exchange Act of 1934 (15 U.S.C. 78a et seq.). 

3 SEC. 2. FINDINGS. 

4 Upon the basis of facts disclosed by the record and 

5 report of the Securities and Exchange Commission made 

6 pursuant to section 702 of the Sarbanes-Oxley Act of 

7 2002 (116 Stat. 797), hearings before the House Com8 mittee on Financial Services during the 108th and 109th 

9 Congresses, comment letters to the concept releases and 

10 proposed rules of the Securities and Exchange Commis11 sion, and facts otherwise disclosed and ascertained, the 

12 Congress finds that— 

13 (1) credit rating agencies are of national con14 cern, in that, among other things— 

15 (A) their ratings, publications, writings, 

16 analyses, and reports are furnished and distrib17 uted, and their contracts, subscription agree18 ments, and other arrangements with clients are 

19 negotiated and performed, by the use of the 

20 mails and means and instrumentalities of inter21 state commerce; 

22 (B) their ratings, publications, writings, 

23 analyses, and reports customarily relate to the 

24 purchase and sale of securities traded on securi25 ties exchanges and in interstate over-the- 
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1 counter markets, securities issued by companies 

2 engaged in business in interstate commerce, 

3 and securities issued by national banks and 

4 member banks of the Federal Reserve System; 

5 (C) the foregoing transactions occur in 

6 such volume as substantially to affect interstate 

7 commerce, and securities markets, the national 

8 banking system, and the national economy; and 

9 (D) their regulation serves the compelling 

10 interest of investor protection; and 

11 (2) the Securities and Exchange Commission— 

12 (A) has, through its designation of certain 

13 credit rating agencies as nationally recognized 

14 statistical rating organizations, created an arti15 ficial barrier to entry for new participants; and 

16 (B) will, in its latest proposed rule defining 

17 nationally recognized statistical rating organiza18 tions, codify and strengthen this barrier. 

19 SEC. 3. DEFINITIONS. 

20 Section 3(a) (15 U.S.C. 78c(a)) is amended by add21 ing at the end the following new paragraphs: 

22 ‘‘(60) STATISTICAL RATING ORGANIZATION.— 

23 ‘‘(A) DEFINITION.—The term ‘statistical 

24 rating organization’ means an entity— 
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1 ‘‘(i) the primary business of which, for 

2 at least the most recent three consecutive 

3 years, has been the issuance of publicly 

4 available ratings; and 

5 ‘‘(ii) that employs either a quan6 titative or qualitative model, or both, to de7 termine its publicly available ratings. 

8 ‘‘(B) PUBLICLY AVAILABLE RATINGS.— 

9 For purposes of subparagraph (A), the term 

10 ‘publicly available ratings’ means ratings on 

11 public companies or specific debt securities or 

12 both disseminated on the Internet for free or a 

13 fee. 

14 ‘‘(61) NATIONALLY REGISTERED STATISTICAL

15 RATING ORGANIZATION; NRSRO.—The term ‘nation16 ally registered statistical rating organization’ or 

17 ‘NRSRO’ means a statistical rating organization 

18 registered or required to register pursuant to section 

19 15E of this title.’’. 

20 SEC. 4. REGISTRATION OF STATISTICAL RATING ORGANI21 ZATIONS. 

22 (a) AMENDMENT.—The Securities Exchange Act of 

23 1934 is amended by inserting after section 15D (15 

24 U.S.C. 78o–6) the following new section: 
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1 ‘‘SEC. 15E. REGISTRATION OF STATISTICAL RATING ORGA2 NIZATIONS. 

3 ‘‘(a) REGISTRATION REQUIRED.—Except as provided 

4 in subsection (b), it shall be unlawful for any statistical 

5 rating organization, unless registered under this section, 

6 to make use of the mails or any means or instrumentality 

7 of interstate commerce in connection with its business as 

8 a statistical rating organization. 

9 ‘‘(b) EXCEPTIONS.—The Commission, by rule or 

10 order, as it deems consistent with the public interest and 

11 the protection of investors, may conditionally or uncondi12 tionally exempt from subsection (a) of this section any sta13 tistical rating organization specified in such rule or order. 

14 ‘‘(c) REGISTRATION PROCEDURES.— 

15 ‘‘(1) FILING OF APPLICATION FORM.—A statis16 tical rating organization may be registered by filing 

17 with the Commission an application for registration 

18 in such form and containing such of the following 

19 and any other information and documents con20 cerning such statistical rating organization and any 

21 persons associated with such statistical rating orga22 nization as the Commission, by rule, may prescribe 

23 as necessary or appropriate in the public interest or 

24 for the protection of investors: 

25 ‘‘(A) conflicts of interest faced by such sta26 tistical rating organization and the management 
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1 of those conflicts by such statistical rating orga2 nization; 

3 ‘‘(B) the procedures and methodologies 

4 such statistical rating organization uses in de5 termining ratings; 

6 ‘‘(C) ratings performance measurement 

7 statistics over short-term and long-term periods 

8 of such statistical rating organization; and 

9 ‘‘(D) procedures put in place by such sta10 tistical rating organization to prevent the mis11 use of non-public information. 

12 ‘‘(2) REVIEW OF APPLICATION.— 

13 ‘‘(A) INITIAL DETERMINATION.—Within 

14 90 days of the date of the filing of such applica15 tion (or within such longer period as to which 

16 the applicant consents) the Commission shall— 

17 ‘‘(i) by order grant such registration; 

18 or 

19 ‘‘(ii) institute proceedings to deter20 mine whether registration should be de21 nied. 

22 ‘‘(B) CONDUCT OF PROCEEDINGS.—Such 

23 proceedings shall include notice of the grounds 

24 for denial under consideration and opportunity 

25 for hearing and shall be concluded within 90 
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1 days of the date of the filing of the application 

2 for registration. At the conclusion of such pro3 ceedings the Commission, by order, shall grant 

4 or deny such registration. The Commission may 

5 extend the time for conclusion of such pro6 ceedings for up to 90 days if it finds good cause 

7 for such extension and publishes its reasons for 

8 so finding or for such longer period as to which 

9 the applicant consents. 

10 ‘‘(C) GROUNDS FOR DECISION.—The Com11 mission shall grant such registration if the 

12 Commission finds that the requirements of this 

13 section are satisfied. The Commission shall 

14 deny such registration if it does not make such 

15 a finding or if it finds that if the applicant were 

16 so registered, its registration would be subject 

17 to suspension or revocation under subsection 

18 (d) of this section. 

19 ‘‘(d) CENSURE, DENIAL, OR SUSPENSION OF REG20 ISTRATION; NOTICE AND HEARING.—The Commission, by 

21 order, shall censure, place limitations on the activities, 

22 functions, or operations of, suspend for a period not ex23 ceeding 12 months, or revoke the registration of any sta24 tistical rating organization if the Commission finds, on the 

25 record after notice and opportunity for hearing, that such 
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1 censure, placing of limitations, suspension, or revocation 

2 is in the public interest and that such statistical rating 

3 organization, or any person associated with such statis4 tical rating organization, whether prior to or subsequent 

5 to becoming so associated— 

6 ‘‘(1) has committed or omitted any act, or is 

7 subject to an order or finding, enumerated in sub8 paragraph (A), (D), (E), (H), or (G) of paragraph 

9 (4) of section 15(b), has been convicted of any of10 fense specified in subparagraph (B) of such para11 graph (4) within 10 years of the commencement of 

12 the proceedings under this subsection, or is enjoined 

13 from any action, conduct, or practice specified in 

14 subparagraph (C) of such paragraph (4); 

15 ‘‘(2) has been convicted during the 10-year pe16 riod preceding the date of filing of any application 

17 for registration, or at any time thereafter, of— 

18 ‘‘(A) any crime that is punishable by im19 prisonment for 1 or more years, and that is not 

20 described in section 15(b)(4)(B); or 

21 ‘‘(B) a substantially equivalent crime by a 

22 foreign court of competent jurisdiction; or 

23 ‘‘(3) is subject to any order of the Commission 

24 barring or suspending the right of the person to be 

25 associated with a statistical rating organization. 
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1 ‘‘(e) WITHDRAWAL OF ADVISERS REGISTRATION.— 

2 Each statistical rating organization registered under sec3 tion 203 of the Investment Advisers Act of 1940 shall 

4 withdraw from registration under such section by filing 

5 a written notice of withdrawal with the Commission pursu6 ant to section 203(h) of the Investment Advisers Act, upon 

7 the granting of registration of such organization by the 

8 Commission pursuant to subsection (c) of this section. 

9 ‘‘(f) REPRESENTATIONS.— 

10 ‘‘(1) REPRESENTATIONS OF SPONSORSHIP BY

11 UNITED STATES OR AGENCY THEREOF.—It shall be 

12 unlawful for any statistical rating organization reg13 istered under this section to represent or imply in 

14 any manner whatsoever that such statistical rating 

15 organization has been sponsored, recommended, or 

16 approved, or that such statistical rating organiza17 tion’s abilities or qualifications have in any respect 

18 been passed upon, by the United States or any agen19 cy or any officer thereof. 

20 ‘‘(2) STATEMENT OF REGISTRATION UNDER SE21 CURITIES EXCHANGE ACT OF 1934 PROVISIONS.—No 

22 provision of paragraph (1) shall be construed to pro23 hibit a statement that a statistical rating organiza24 tion is a nationally registered statistical rating orga25 nization under the Securities Exchange Act of 1934, 
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1 if such statement is true in fact and if the effect of 

2 such registration is not misrepresented. 

3 ‘‘(g) PREVENTION OF MISUSE OF NONPUBLIC IN4 FORMATION.—Each statistical rating organization subject 

5 to this section shall establish, maintain, and enforce writ6 ten policies and procedures reasonably designed, taking 

7 into consideration the nature of such statistical rating or8 ganization’s business, to prevent the misuse in violation 

9 of this title, or the rules or regulations thereunder, of ma10 terial, nonpublic information by such statistical rating or11 ganization or any person associated with such statistical 

12 rating organization. The Commission, as it deems nec13 essary or appropriate in the public interest or for the pro14 tection of investors, shall adopt rules or regulations to re15 quire specific policies or procedures reasonably designed 

16 to prevent misuse in violation of this title (or the rules 

17 or regulations thereunder) of material, nonpublic informa18 tion. 

19 ‘‘(h) MANAGEMENT OF CONFLICTS OF INTEREST.— 

20 Each statistical rating organization subject to this section 

21 shall establish, maintain, and enforce written policies and 

22 procedures reasonably designed, taking into consideration 

23 the nature of the business of such statistical rating organi24 zation and affiliated persons and affiliated companies of 

25 such statistical rating organization, to address and man-
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1 age the conflicts of interest that can arise from such busi2 ness. The Commission, as it deems necessary or appro3 priate in the public interest or for the protection of inves4 tors, shall adopt rules or regulations to require specific 

5 policies or procedures reasonably designed to address and 

6 manage such conflicts of interest. 

7 ‘‘(i) PROHIBITION ON ANTI-COMPETITIVE PRAC8 TICES.—The Commission shall adopt rules or regulations 

9 to prohibit specific anti-competitive practices common to 

10 the statistical rating organization industry. 

11 ‘‘(j) ELIMINATION OF COMMISSION DESIGNATION

12 PROCESS FOR NATIONALLY RECOGNIZED STATISTICAL

13 RATING ORGANIZATIONS.— 

14 ‘‘(1) CESSATION OF DESIGNATION.—Within 30 

15 days after the enactment of the Credit Rating Agen16 cy Duopoly Relief Act of 2005, the Commission shall 

17 cease to designate persons and companies as nation18 ally recognized statistical rating organizations, as 

19 that term is used under rule 15c3–1 of the Commis20 sion’s rules (17 C.F.R. 240.15c3–1). 

21 ‘‘(2) PROHIBITION ON RELIANCE ON NO-ACTION

22 RELIEF.—The no-action relief that the Commission 

23 has granted with respect to the designation of na24 tionally recognized statistical rating organizations, 

25 as that term is used under rule 15c3–1 of the Com-
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1 mission’s rules (17 C.F.R. 240.15c3–1), shall be 

2 void and of no force or effect. 

3 ‘‘(3) NOTICE TO OTHER AGENCIES.—Within 30 

4 days after the date of enactment of the Credit Rat5 ing Agency Duopoly Relief Act of 2005, the Com6 mission shall give notice to the Federal agencies 

7 which employ the term ‘nationally recognized statis8 tical rating organization’ (as that term is used under 

9 rule 15c3–1 of the Commission’s rules (17 C.F.R. 

10 240.15c3–1)) in their rules and regulations regard11 ing the actions undertaken pursuant to paragraphs 

12 (1) and (2).’’. 

13 (b) CONFORMING AMENDMENTS TO THE 1934 

14 ACT.— 

15 (1) Section 3(a)(41) of the Securities Exchange 

16 Act of 1934 (15 U.S.C. 78c(a)(41)) is amended by 

17 striking ‘‘recognized’’ and inserting ‘‘registered’’. 

18 (2) Section 3(a)(53)(A) of such Act is amended 

19 by striking ‘‘recognized’’ and inserting ‘‘registered’’. 

20 (3) Section 15(b)(4)(B)(ii) of such Act (15 

21 U.S.C. 78o(b)(4)(B)(ii)) is amended by inserting 

22 ‘‘statistical rating organization,’’ after ‘‘transfer 

23 agent,’’. 
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1 (4) Section 15(b)(4)(C) of such Act is amended 

2 by inserting ‘‘statistical rating organization,’’ after 

3 ‘‘transfer agent,’’. 

4 (5) Section 21B(a) of such Act (15 U.S.C. 78u5 2(a)) is amended by inserting ‘‘15E,’’ after ‘‘15C,’’. 

6 (c) OTHER CONFORMING AMENDMENTS.— 

7 (1) Section 5136A(a)(3)(A)(i) of the Revised 

8 Statutes of the United States (12 U.S.C. 

9 24a(a)(3)(A)(i)) is amended by striking ‘‘recog10 nized’’ and inserting ‘‘registered’’. 

11 (2) Section 28(d)(4)(A) of the Federal Deposit 

12 Insurance Act (12 U.S.C. 1831e(d)(4)(A)) is amend13 ed by striking ‘‘recognized’’ and inserting ‘‘reg14 istered’’. 

15 (3) Section 1319 of the Housing and Commu16 nity Development Act of 1992 (12 U.S.C. 4519) is 

17 amended by striking ‘‘effectively’’ and all that fol18 lows through ‘‘broker-dealers’’ and inserting ‘‘that is 

19 a nationally registered statistical rating organiza20 tion, as such term is defined in section 3(a) of the 

21 Securities Exchange Act of 1934’’. 

22 (4) Section 6(a)(5)(A)(iv)(I) of the Investment 

23 Company Act of 1940 (15 U.S.C. 80a– 

24 6(a)(5)(A)(iv)(I)) is amended by striking ‘‘recog25 nized’’ and inserting ‘‘registered’’. 
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1 (5) Section 439 of the Higher Education Act of 

2 1965 (20 U.S.C. 1087–2) is amended— 

3 (A) in each of the following provisions, by 

4 striking ‘‘nationally recognized’’ and inserting 

5 ‘‘nationally registered’’: subsections 

6 (d)(5),(r)(1)(B), (r)(11), and (r)(15)(A); and 

7 (B) in subsection (r)(15)(A) by striking 

8 ‘‘means any entity recognized as such by the 

9 Securities and Exchange Commission’’ and in10 serting ‘‘means any nationally registered statis11 tical rating organization as that term is defined 

12 under the Securities Exchange Act of 1934’’. 

13 (6) Section 181(11) of title 23, United States 

14 Code, is amended by striking ‘‘identified by the Se15 curities and Exchange Commission as a Nationally 

16 Recognized Statistical Rating Organization’’ and in17 serting ‘‘registered with the Securities and Exchange 

18 Commission as a statistical rating organization as 

19 that term is defined under the Securities Exchange 

20 Act of 1934 (15 U.S.C. 78 et seq.)’’. 

21 (7) Section 1004(d)(2)(D)(i)(II) of the LOCAL 

22 TV Act (47 U.S.C 1103(d)(2)(D)(i)(II)) is amended 

23 by striking ‘‘recognized’’ and inserting ‘‘registered’’. 
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1 SEC. 5. ANNUAL AND OTHER REPORTS. 

2 Section 17(a) (15 U.S.C. 78q(a)) is amended by add3 ing at the end the following new paragraph: 

4 ‘‘(4) Every nationally registered statistical rating or5 ganization shall also make and keep for described periods 

6 such records, furnish such copies thereof, and make and 

7 disseminate such reports as the Commission, by rule, pre8 scribes as necessary or appropriate in the public interest, 

9 for the protection of investors, or otherwise in furtherance 

10 of the purposes of this title.’’. 

11 SEC. 6. GAO STUDY AND REPORT REGARDING CONSOLIDA12 TION OF CREDIT RATING AGENCIES. 

13 (a) STUDY REQUIRED.—The Comptroller General of 

14 the United States shall conduct a study— 

15 (1) to identify— 

16 (A) the factors that have led to the consoli17 dation of credit rating agencies; 

18 (B) the present and future impact of the 

19 condition described in subparagraph (A) on the 

20 securities markets, both domestic and inter21 national; and 

22 (C) solutions to any problems identified 

23 under subparagraph (B), including ways to in24 crease competition and the number of firms ca25 pable of providing credit rating services to large 
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1 national and multinational business organiza2 tions that are subject to the securities laws; 

3 (2) of the problems, if any, faced by business 

4 organizations that have resulted from limited com5 petition among credit rating agencies, including— 

6 (A) higher costs; 

7 (B) lower quality of services; 

8 (C) anti-competitive practices; 

9 (D) impairment of independence; and 

10 (E) lack of choice; and 

11 (3) whether and to what extent Federal or 

12 State regulations impede competition among credit 

13 rating agencies. 

14 (b) CONSULTATION.—In planning and conducting the 

15 study under this section, the Comptroller General shall 

16 consult with— 

17 (1) the Securities and Exchange Commission; 

18 (2) the Department of Justice; and 

19 (3) any other public or private sector organiza20 tion that the Comptroller General considers appro21 priate. 

22 (c) REPORT REQUIRED.—Not later than 180 days 

23 after the date of enactment of this Act, the Comptroller 

24 General shall submit a report on the results of the study 

25 required by this section to the Committee on Banking, 
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1 Housing, and Urban Affairs of the Senate and the Com2 mittee on Financial Services of the House of Representa3 tives. 

4 SEC. 7. EFFECTIVE DATE. 

5 The amendments made by section 4 and 5 shall take 

6 effect on January 1, 2007, except as otherwise provided 

7 in subsections (e), (j)(1), and (j)(3) of section 15E of the 

8 Securities Exchange Act of 1934 (as added by such 

9 amendments), and except that the Securities and Ex10 change Commission is authorized to prescribe rules and 

11 regulations to carry out such amendments beginning on 

12 the date of enactment of this Act. 

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