I 

111TH CONGRESS 

1ST SESSION H. R. 3890 

To amend the Securities Exchange Act of 1934 to enhance oversight of 

nationally recognized statistical rating organizations, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

OCTOBER 21, 2009 

Mr. KANJORSKI (for himself, Mr. CAPUANO, Ms. KILROY, Mr. CLEAVER, and 

Ms. KOSMAS) introduced the following bill; which was referred to the 

Committee on Financial Services 

A BILL 

To amend the Securities Exchange Act of 1934 to enhance 

oversight of nationally recognized statistical rating organizations, and for other purposes. 

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. 

4 This title may be cited as the ‘‘Accountability and 

5 Transparency in Rating Agencies Act’’. 


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1 SEC. 2. ENHANCED REGULATION OF NATIONALLY RECOG2 NIZED STATISTICAL RATING ORGANIZA3 TIONS. 

4 Section 15E of the Securities Exchange Act of 1934 

5 (15 U.S.C. 78o–7) is amended— 

6 (1) in subsection (a)— 

7 (A) in paragraph (1)(A), by striking ‘‘fur8 nish to’’ and inserting ‘‘file with’’; 

9 (B) in paragraph (2)(A), by striking ‘‘fur10 nished to’’ and inserting ‘‘filed with’’; and 

11 (C) in paragraph (2)(B)(i)(II), by striking 

12 ‘‘furnished to’’ and inserting ‘‘filed with’’; 

13 (2) in subsection (b)— 

14 (A) in paragraph (1)(A), by striking ‘‘fur15 nished’’ and inserting ‘‘filed’’ and by striking 

16 ‘‘furnishing’’ and inserting ‘‘filing’’; 

17 (B) in paragraph (1)(B), by striking ‘‘fur18 nishing’’ and inserting ‘‘filing’’; and 

19 (C) in the first sentence of paragraph (2), 

20 by striking ‘‘furnish to’’ and inserting ‘‘file 

21 with’’; 

22 (3) in subsection (c)— 

23 (A) paragraph (2)— 

24 (i) in the second sentence by inserting 

25 ‘‘including the requirements of this secVerDate Nov 24 2008 02:14 Oct 22, 2009 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H3890.IH H3890

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1 tion,’’ after ‘‘Notwithstanding any other 

2 provision of law,’’; and 

3 (ii) by inserting before the period at 

4 the end of the last sentence ‘‘, provided 

5 that this paragraph does not afford a de6 fense against any action or proceeding 

7 brought by the Commission to enforce the 

8 antifraud provision of the securities laws’’; 

9 and 

10 (B) by adding at the end the following new 

11 paragraph: 

12 ‘‘(3) REVIEW OF INTERNAL PROCESSES FOR

13 DETERMINING CREDIT RATINGS.— 

14 ‘‘(A) IN GENERAL.—The Commission shall 

15 review credit ratings issued by, and the policies, 

16 procedures, and methodologies employed by, 

17 each nationally recognized statistical rating or18 ganization to ensure that— 

19 ‘‘(i) the nationally recognized statis20 tical rating organization has established 

21 and documented a system of internal con22 trols, due diligence and implementation of 

23 methodologies for determining credit rat24 ings, taking into consideration such factors 

25 as the Commission may prescribe by rule; 


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1 ‘‘(ii) the nationally recognized statis2 tical rating organization adheres to such 

3 system; and 

4 ‘‘(iii) the public disclosures of the na5 tionally recognized statistical rating orga6 nization required under this section about 

7 its ratings, methodologies, and procedures 

8 are consistent with such system. 

9 ‘‘(B) MANNER AND FREQUENCY.—The 

10 Commission shall conduct reviews required by 

11 this paragraph no less frequently than annually 

12 in a manner to be determined by the Commis13 sion. 

14 ‘‘(4) PROVISION OF INFORMATION TO THE COM15 MISSION.—Each nationally recognized statistical rat16 ing organization shall make available and maintain 

17 such records and information, for such a period of 

18 time, as the Commission may prescribe, by rule, as 

19 necessary for the Commission to conduct the reviews 

20 under paragraph (3).’’; 

21 (4) in subsection (d)— 

22 (A) in the heading, by inserting ‘‘FINE,’’ 

23 after ‘‘CENSURE,’’; 

24 (B) by striking ‘‘shall censure’’ and all 

25 that follows through ‘‘revocation’’ and inserting 


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1 the following: ‘‘shall censure, fine in accordance 

2 with section 21B(a), place limitations on the ac3 tivities, functions, or operations of, suspend for 

4 a period not exceeding 12 months, or revoke the 

5 registration of any nationally recognized statis6 tical rating organization (or with respect to any 

7 person who is associated, who is seeking to be8 come associated, or, at the time of the alleged 

9 misconduct, who was associated or was seeking 

10 to become associated with a nationally recog11 nized statistical rating organization, the Com12 mission, by order, shall censure, fine in accord13 ance with section 21B(a), place limitations on 

14 the activities or functions of such person, sus15 pend for a period not exceeding 12 months, or 

16 bar such person from being associated with a 

17 nationally recognized statistical rating organiza18 tion), if the Commission finds, on the record 

19 after notice and opportunity for hearing, that 

20 such censure, fine, placing of limitations, bar, 

21 suspension, or revocation’’; 

22 (C) in paragraph (2), by striking ‘‘fur23 nished to’’ and inserting ‘‘filed with’’; 

24 (D) in paragraph (4)— 


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1 (i) by striking ‘‘furnish’’ and inserting 

2 ‘‘file’’; and 

3 (ii) by striking ‘‘or’’ at the end; 

4 (E) in paragraph (5), by striking the pe5 riod at the end; and 

6 (F) by adding at the end the following: 

7 ‘‘(6) has failed reasonably to supervise another 

8 person who commits a violation of the securities laws 

9 or any rules of the Municipal Securities Rulemaking 

10 Board if such other person is subject to his or her 

11 supervision, except that no person shall be deemed 

12 to have failed reasonably to supervise any other per13 son under this paragraph, if— 

14 ‘‘(A) there have been established proce15 dures, and a system for applying such proce16 dures, which would reasonably be expected to 

17 prevent and detect, insofar as practicable, any 

18 such violation by such other person; and 

19 ‘‘(B) such person has reasonably dis20 charged the duties and obligations incumbent 

21 upon him or her by reason of such procedures 

22 and system without reasonable cause to believe 

23 that such procedures and system were not being 

24 complied with; or 


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1 ‘‘(7) fails to conduct sufficient surveillance to 

2 ensure that credit ratings remain current and reli3 able, as applicable.’’; 

4 (5) in subsection (e)— 

5 (A) by striking paragraph (1); and 

6 (B) in paragraph (2), by striking ‘‘(2) 

7 COMMISSION AUTHORITY.—’’ and moving the 

8 text of such paragraph to follow the heading of 

9 subsection (e); 

10 (6) by amending subsection (h) to read as fol11 lows: 

12 ‘‘(h) CORPORATE GOVERNANCE, ORGANIZATION, AND

13 MANAGEMENT OF CONFLICTS OF INTEREST.— 

14 ‘‘(1) BOARD OF DIRECTORS.— 

15 ‘‘(A) IN GENERAL.—Each nationally recog16 nized statistical rating organization or its par17 ent entity shall have a board of directors. 

18 ‘‘(B) INDEPENDENT DIRECTORS.—At least 

1 19 ⁄3 of such board, but no less than 2 of the 

20 members of the board of directors, shall be 

21 independent directors. In order to be considered 

22 independent for purposes of this subsection, a 

23 director of a nationally recognized statistical 

24 rating organization may not, other than in his 


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1 or her capacity as a member of the board of di2 rectors or any committee thereof— 

3 ‘‘(i) accept any consulting, advisory, 

4 or other compensatory fee from the nation5 ally recognized statistical rating organiza6 tion; or 

7 ‘‘(ii) be a person associated with the 

8 nationally recognized statistical rating or9 ganization or with any affiliated company 

10 thereof. 

11 ‘‘(C) COMPENSATION AND TERM.—The 

12 compensation of the independent directors shall 

13 not be linked to the business performance of the 

14 nationally recognized statistical rating organiza15 tion and shall be arranged so as to ensure the 

16 independence of their judgment. The term of 

17 office of the independent directors shall be for 

18 a pre-agreed fixed period not exceeding 5 years 

19 and shall not be renewable. 

20 ‘‘(D) DUTIES.—In addition to the overall 

21 responsibility of the board of directors, the 

22 board shall oversee— 

23 ‘‘(i) the establishment, maintenance, 

24 and enforcement of policies and procedures 

25 for determining credit ratings; 


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1 ‘‘(ii) the establishment, maintenance, 

2 and enforcement of policies and procedures 

3 to address, manage, and disclose any con4 flicts of interest; 

5 ‘‘(iii) the effectiveness of the internal 

6 control system with respect to policies and 

7 procedures for determining credit ratings; 

8 and 

9 ‘‘(iv) the compensation and promotion 

10 policies and practices of the nationally rec11 ognized statistical rating organization. 

12 ‘‘(2) ORGANIZATION POLICIES AND PROCE13 DURES.—Each nationally recognized statistical rat14 ing organization shall establish, maintain, and en15 force written policies and procedures reasonably de16 signed, taking into consideration the nature of the 

17 business of the nationally recognized statistical rat18 ing organization and affiliated persons and affiliated 

19 companies thereof, to address, manage, and disclose 

20 any conflicts of interest that can arise from such 

21 business. 

22 ‘‘(3) COMMISSION RULES.—The Commission 

23 shall issue rules to prohibit, or require the manage24 ment and disclosure of, any conflicts of interest re25 lating to the issuance of credit ratings by a nationVerDate Nov 24 2008 02:14 Oct 22, 2009 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H3890.IH H3890

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1 ally recognized statistical rating organization, includ2 ing— 

3 ‘‘(A) conflicts of interest relating to the 

4 manner in which a nationally recognized statis5 tical rating organization is compensated by the 

6 obligor, or any affiliate of the obligor, for 

7 issuing credit ratings or providing related serv8 ices; 

9 ‘‘(B) conflicts of interest relating to the 

10 provision of consulting, advisory, or other serv11 ices by a nationally recognized statistical rating 

12 organization, or any person associated with 

13 such nationally recognized statistical rating or14 ganization, to the obligor, or any affiliate of the 

15 obligor; 

16 ‘‘(C) disclosure of conflicts of interests re17 lating to business relationships, ownership in18 terests, and affiliations of nationally recognized 

19 statistical rating organization board members 

20 with obligors, or any other financial or personal 

21 interests between a nationally recognized statis22 tical rating organization, or any person associ23 ated with such nationally recognized statistical 

24 rating organization, and the obligor, or any af25 filiate of the obligor; 


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1 ‘‘(D) disclosure of conflicts of interests re2 lating to any affiliation of a nationally recog3 nized statistical rating organization, or any per4 son associated with such nationally recognized 

5 statistical rating organization, with any person 

6 who underwrites securities, money market in7 struments, or other instruments that are the 

8 subject of a credit rating; 

9 ‘‘(E) a requirement that each nationally 

10 recognized statistical rating organization dis11 close on such organization’s website a consoli12 dated report at the end of each fiscal year that 

13 shows— 

14 ‘‘(i) the percent of net revenue earned 

15 by the nationally recognized statistical rat16 ing organization or an affiliate of a nation17 ally recognized statistical rating organiza18 tion, or any person associated with a na19 tionally recognized statistical rating orga20 nization, to the extent determined appro21 priate by the Commission, for that fiscal 

22 year for providing services and products 

23 other than credit rating services to each 

24 person who paid for a credit rating; and 


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1 ‘‘(ii) the relative standing of each per2 son who paid for a credit rating that was 

3 outstanding as of the end of the fiscal year 

4 in terms of the amount of net revenue 

5 earned by the nationally recognized statis6 tical rating organization attributable to 

7 each such person and classified by the 

8 highest 5, 10, 25, and 50 percentiles and 

9 lowest 50 and 25 percentiles; 

10 ‘‘(F) rules providing for the establishment 

11 of a system of payment for each nationally rec12 ognized statistical rating organization that re13 quires that payments are structured in a man14 ner designed to ensure that the nationally rec15 ognized statistical rating organization conducts 

16 accurate and reliable surveillance of ratings 

17 over time, as applicable, and that incentives for 

18 reliable ratings are in place; 

19 ‘‘(G) a requirement that a nationally rec20 ognized statistical rating organization disclose 

21 with the publication of a credit rating the type 

22 and number of credit ratings it has provided to 

23 the person being rated or affiliates of such per24 son, the fees it has billed for the credit rating, 

25 and the aggregate amount of net revenue 


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1 earned by the nationally recognized statistical 

2 rating in the preceding 2 fiscal years attrib3 utable to the person being rated and its affili4 ates; and 

5 ‘‘(H) any other potential conflict of inter6 est, as the Commission determines necessary or 

7 appropriate in the public interest or for the pro8 tection of investors. 

9 ‘‘(4) LOOK-BACK REQUIREMENT.— 

10 ‘‘(A) REVIEW BY THE NATIONALLY RECOG11 NIZED STATISTICAL RATING ORGANIZATION.— 

12 Each nationally recognized statistical rating or13 ganization shall establish, maintain, and enforce 

14 policies and procedures reasonably designed to 

15 ensure that, in any case in which an employee 

16 of a person subject to a credit rating of the na17 tionally recognized statistical rating organiza18 tion or the issuer, underwriter, or sponsor of a 

19 security or money market instrument subject to 

20 a credit rating of the nationally recognized sta21 tistical rating organization was employed by the 

22 nationally recognized statistical rating organiza23 tion and participated in any capacity in deter24 mining credit ratings for the person or the se25 curities or money market instruments during 


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1 the 1-year period preceding the date an action 

2 was taken with respect to the credit rating, the 

3 nationally recognized statistical rating organiza4 tion shall— 

5 ‘‘(i) conduct a review to determine 

6 whether any conflicts of interest of the em7 ployee influenced the credit rating; and 

8 ‘‘(ii) take action to revise the rating if 

9 appropriate, in accordance with such rules 

10 as the Commission shall prescribe. 

11 ‘‘(B) REVIEW BY COMMISSION.— 

12 ‘‘(i) IN GENERAL.—The Commission 

13 shall conduct periodic reviews of the poli14 cies described in subparagraph (A) and the 

15 implementation of the policies at each na16 tionally recognized statistical rating orga17 nization to ensure they are reasonably de18 signed and implemented to most effectively 

19 eliminate conflicts of interest. 

20 ‘‘(ii) TIMING OF REVIEWS.—The Com21 mission shall review the code of ethics and 

22 conflict of interest policy of each nationally 

23 recognized statistical rating organization— 

24 ‘‘(I) not less frequently than an25 nually; and 


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1 ‘‘(II) whenever such policies are 

2 materially modified or amended. 

3 ‘‘(5) REPORT TO COMMISSION ON CERTAIN EM4 PLOYMENT TRANSITIONS.— 

5 ‘‘(A) REPORT REQUIRED.—Each nationally 

6 recognized statistical rating organization shall 

7 report to the Commission any case such organi8 zation knows or can reasonably be expected to 

9 know where a former employee of such organi10 zation obtains employment with any issuer, un11 derwriter, or sponsor of a security or money 

12 market instrument for which the organization 

13 issued a credit rating during the 12-month pe14 riod prior to such employment, if such em15 ployee— 

16 ‘‘(i) was an officer of such organiza17 tion; 

18 ‘‘(ii) participated in any capacity in 

19 determining credit ratings for such issuer, 

20 underwriter, or sponsor; or 

21 ‘‘(iii) supervised an employee de22 scribed un subparagraph (B). 

23 ‘‘(B) PUBLIC DISCLOSURE.—Upon receiv24 ing such a report, the Commission shall make 

25 such information publicly available.’’; 


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1 (7) by amending subsection (j) to read as fol2 lows: 

3 ‘‘(j) DESIGNATION OF COMPLIANCE OFFICER.— 

4 ‘‘(1) IN GENERAL.—Each nationally recognized 

5 statistical rating organization shall designate an in6 dividual to serve as a compliance officer. 

7 ‘‘(2) DUTIES.—The compliance officer shall— 

8 ‘‘(A) report directly to the board of the na9 tionally recognized statistical rating organiza10 tion; 

11 ‘‘(B) review compliance with policies and 

12 procedures to manage conflicts of interest and 

13 assess the risk that the compliance (or lack of 

14 such compliance) may compromise the integrity 

15 of the credit rating process; 

16 ‘‘(C) review compliance with internal con17 trols with respect to the procedures and meth18 odologies for determining credit ratings, includ19 ing quantitative models and qualitative inputs 

20 used in the rating process, and assess the risk 

21 that such compliance with the internal controls 

22 (or lack of such compliance) may compromise 

23 the integrity and quality of the credit rating 

24 process; 


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1 ‘‘(D) in consultation with the board of the 

2 nationally recognized statistical rating organiza3 tion, resolve any conflicts of interest that may 

4 arise; 

5 ‘‘(E) be responsible for administering the 

6 policies and procedures required to be estab7 lished pursuant to this section; 

8 ‘‘(F) ensure compliance with securities 

9 laws and the rules and regulations issued there10 under, including rules prescribed by the Com11 mission pursuant to this section; and 

12 ‘‘(G) shall establish procedures— 

13 ‘‘(i) for the receipt, retention, and 

14 treatment of complaints regarding credit 

15 ratings, models, methodologies, and com16 pliance with the securities laws and the 

17 policies and procedures required under this 

18 section; 

19 ‘‘(ii) for the receipt, retention, and 

20 treatment of confidential, anonymous com21 plaints by employees, issuers, and inves22 tors; 

23 ‘‘(iii) for the remediation of non-com24 pliance issues found during compliance of25 fice reviews, the reviews required under 


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1 paragraph (7), internal or external audit 

2 findings, self-reported errors, or through 

3 validated complaints; and 

4 ‘‘(iv) designed so that ratings that the 

5 nationally recognized statistical rating or6 ganization disseminates reflect consider7 ation of all information that comes to the 

8 attention of and is believed by the nation9 ally recognized statistical rating organiza10 tion to be relevant, in a manner generally 

11 consistent with the nationally recognized 

12 statistical rating organization’s published 

13 rating methodology, including information 

14 which is provided, received, or otherwise 

15 obtained from issuer and non-issuer 

16 sources, such as investors, the media, and 

17 other interested or informed parties. 

18 ‘‘(3) LIMITATIONS.—The compliance officer 

19 shall not, while serving in that capacity— 

20 ‘‘(A) determine credit ratings; 

21 ‘‘(B) participate in the establishment of 

22 the procedures and methodologies or the quan23 titative models and qualitative inputs used to 

24 determine credit ratings; 


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1 ‘‘(C) perform marketing or sales functions; 

2 or 

3 ‘‘(D) participate in establishing compensa4 tion levels, other than for employees working 

5 for the compliance officer. 

6 ‘‘(4) ANNUAL REPORTS REQUIRED.—The com7 pliance officer shall annually prepare and sign a re8 port on the compliance of the nationally recognized 

9 statistical rating organization with the securities 

10 laws and such organization’s internal policies and 

11 procedures, including its code of ethics and conflict 

12 of interest policies, in accordance with rules pre13 scribed by the Commission. Such compliance report 

14 shall accompany the financial reports of the nation15 ally recognized statistical rating organization that 

16 are required to be filed with the Commission pursu17 ant to this section and shall include a certification 

18 that, under penalty of law, the report is accurate 

19 and complete.’’; 

20 (8) in subsection (k)— 

21 (A) by striking ‘‘, on a confidential basis,’’; 

22 (B) by striking ‘‘Each nationally’’ and in23 serting the following: 

24 ‘‘(1) IN GENERAL.—Each nationally’’; and 


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1 (C) by adding at the end the following new 

2 paragraph: 

3 ‘‘(2) EXCEPTION.—The Commission may treat 

4 as confidential any item filed with the Commission 

5 under paragraph (1), the publication of which the 

6 Commission determines may have a harmful effect 

7 on a nationally recognized statistical rating organi8 zation.’’; 

9 (9) in subsection (l)(2)(A)(i), by striking ‘‘fur10 nished’’ and inserting ‘‘filed’’; 

11 (10) by amending subsection (p) to read as fol12 lows: 

13 ‘‘(p) ESTABLISHMENT OF SEC OFFICE.—The Com14 mission shall establish an office that administers the rules 

15 of the Commission with respect to the practices of nation16 ally recognized statistical rating organizations in deter17 mining ratings, in the public interest and for the protec18 tion of investors, including rules designed to ensure that 

19 credit ratings issued by such registrants are accurate and 

20 not unduly influenced by conflicts of interest.’’; and 

21 (11) by adding after subsection (p) the fol22 lowing new subsections: 

23 ‘‘(q) TRANSPARENCY OF RATINGS PERFORMANCE.— 

24 ‘‘(1) RULEMAKING REQUIRED.—The Commis25 sion shall, by rule, require each nationally recognized 


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1 statistical rating organization to publicly disclose in2 formation on initial ratings and subsequent changes 

3 to such ratings for the purpose of providing a gauge 

4 of the performance of ratings and allowing investors 

5 to compare performance of ratings by different na6 tionally recognized statistical rating organizations. 

7 ‘‘(2) CONTENT.—The rules of the Commission 

8 under this subsection shall require, at a minimum, 

9 disclosures that— 

10 ‘‘(A) are comparable among nationally rec11 ognized statistical rating organizations, so that 

12 investors can compare rating performance 

13 across rating organizations; 

14 ‘‘(B) are clear and informative for a wide 

15 range of investor sophistication; 

16 ‘‘(C) include performance information over 

17 a range of years and for a variety of classes of 

18 credit ratings, as determined by the Commis19 sion; and 

20 ‘‘(D) are published and made freely avail21 able by the nationally recognized statistical rat22 ing organization, on an easily accessible portion 

23 of its website and in written form when re24 quested by investors. 

25 ‘‘(r) CREDIT RATINGS METHODOLOGIES.— 


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1 ‘‘(1) IN GENERAL.—The Commission shall pre2 scribe rules, in the public interest and for the pro3 tection of investors, that require each nationally rec4 ognized statistical rating organization to establish, 

5 maintain, and enforce written procedures and meth6 odologies that are reasonably designed to— 

7 ‘‘(A) ensure that credit ratings are deter8 mined using procedures and methodologies, in9 cluding quantitative models and qualitative in10 puts that are determined in accordance with the 

11 policies and procedures of the nationally recog12 nized statistical rating organization for devel13 oping and modifying credit rating procedures 

14 and methodologies; 

15 ‘‘(B) ensure that when major changes to 

16 credit rating procedures and methodologies, in17 cluding to quantitative models and qualitative 

18 inputs, are made, that the changes are applied 

19 consistently to all credit ratings to which the 

20 changed procedures and methodologies apply 

21 and, to the extent the changes are made to 

22 credit rating surveillance procedures and meth23 odologies, they are applied to current credit rat24 ings within a time period to be determined by 


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1 the Commission by rule, and that the reason for 

2 the change is publicly disclosed; 

3 ‘‘(C) notify persons who have access to the 

4 credit ratings of the nationally recognized sta5 tistical rating organization, regardless of wheth6 er they are made readily accessible for free or 

7 a reasonable fee, of the version of a procedure 

8 or methodology, including quantitative models 

9 and qualitative inputs, used with respect to a 

10 particular credit rating; 

11 ‘‘(D) notify persons who have access to the 

12 credit ratings of the nationally recognized sta13 tistical rating organization, regardless of wheth14 er they are made readily accessible for free or 

15 a reasonable fee, when a change is made to a 

16 procedure or methodology, including to quan17 titative models and qualitative inputs, or an 

18 error is identified in a procedure or method19 ology that may result in credit rating actions, 

20 and the likelihood of the change resulting in 

21 current credit ratings being subject to rating 

22 actions; and 

23 ‘‘(E) use credit rating symbols that distin24 guish credit ratings for structured products 

25 from credit ratings for other products that the 


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1 Commission determines appropriate or nec2 essary in the public interest and for the protec3 tion of investors. 

4 ‘‘(2) RATING CLARITY AND CONSISTENCY.— 

5 ‘‘(A) COMMISSION OBLIGATION.—Subject 

6 to subparagraphs (B) and (C), the Commission 

7 shall require, by rule, each nationally recognized 

8 statistical rating organization to establish, 

9 maintain, and enforce written policies and pro10 cedures reasonably designed— 

11 ‘‘(i) with respect to credit ratings of 

12 securities and money market instruments, 

13 to assess the risk that investors in securi14 ties and money market instruments may 

15 not receive payment in accordance with the 

16 terms of such securities and instruments; 

17 ‘‘(ii) to define clearly any credit rating 

18 symbol used by that organization; and 

19 ‘‘(iii) to apply such credit rating sym20 bol in a consistent manner for all types of 

21 securities and money market instruments. 

22 ‘‘(B) ADDITIONAL CREDIT FACTORS.— 

23 Nothing in subparagraph (A)— 

24 ‘‘(i) prohibits a nationally recognized 

25 statistical rating organization from using 


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1 additional credit factors that are docu2 mented and disclosed by the organization 

3 and that have a demonstrated impact on 

4 the risk an investor in a security or money 

5 market instrument will not receive repay6 ment in accordance with the terms of 

7 issuance; 

8 ‘‘(ii) prohibits a nationally recognized 

9 statistical rating organization from consid10 ering credit factors that are unique to mu11 nicipal securities that are not backed by 

12 the issuer’s full faith and credit in its as13 sessment of the risk an investor in a secu14 rity or money market instrument will not 

15 receive repayment in accordance with the 

16 terms of issuance; or 

17 ‘‘(iii) prohibits a nationally recognized 

18 statistical rating organization from using 

19 an additional symbol with respect to the 

20 ratings described in subparagraph (A)(i) 

21 for the purpose of distinguishing the rat22 ings of a certain type of security or money 

23 market instrument from ratings of any 

24 other types of securities or money market 

25 instruments. 


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1 ‘‘(C) COMPLEMENTARY RATINGS.—The 

2 Commission shall not impose any requirement 

3 under subparagraph (A) that prevents nation4 ally recognized statistical rating organizations 

5 from establishing ratings that are complemen6 tary to the ratings described in subparagraph 

7 (A)(i) and that are created to measure a dis8 crete aspect of the security’s or instrument’s 

9 risk. 

10 ‘‘(s) TRANSPARENCY OF CREDIT RATING METH11 ODOLOGIES AND INFORMATION REVIEWED.— 

12 ‘‘(1) IN GENERAL.—The Commission shall re13 quire, by rule, a nationally recognized statistical rat14 ing organization to include with the publication of 

15 each credit rating regardless of whether the credit 

16 rating is made readily accessible for free or a rea17 sonable fee a form that discloses information about 

18 the assumptions underlying the procedures and 

19 methodologies used, and the data relied on, to deter20 mine the credit rating in the format prescribed in 

21 paragraph (2) and containing the information de22 scribed in paragraph (3). 

23 ‘‘(2) FORMAT.—The Commission shall prescribe 

24 a form for use under paragraph (1) that— 


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1 ‘‘(A) is designed in a user-friendly and 

2 helpful manner for investors to understand the 

3 information contained in the report; 

4 ‘‘(B) requires the nationally recognized 

5 statistical rating organization to provide the 

6 content, as required by paragraph (3), in a 

7 manner that is directly comparable across secu8 rities; and 

9 ‘‘(C) the nationally recognized statistical 

10 rating organization certifies the information on 

11 the form as true and accurate. 

12 ‘‘(3) CONTENT.—The Commission shall pre13 scribe a form that requires a nationally recognized 

14 statistical rating organization to disclose— 

15 ‘‘(A) the main assumptions included in 

16 constructing procedures and methodologies, in17 cluding quantitative models and qualitative in18 puts and assumptions about the correlation of 

19 defaults across obligors used in rating certain 

20 structured products; 

21 ‘‘(B) the potential shortcomings of the 

22 credit ratings, and the types of risks not meas23 ured in the credit ratings that the registrant is 

24 not commenting on, such as liquidity, market, 

25 and other risks; 


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1 ‘‘(C) information on the certainty of the 

2 rating, including information on the reliability, 

3 accuracy, and quality of the data relied on in 

4 determining the ultimate credit rating and a 

5 statement on the extent to which key data in6 puts for the credit rating were reliable or lim7 ited, including any limits on the reach of histor8 ical data, limits in accessibility to certain docu9 ments or other forms of information that would 

10 have better informed the credit rating, and the 

11 completeness of certain information considered; 

12 ‘‘(D) whether and to what extent third 

13 party due diligence services have been utilized, 

14 and a description of the information that such 

15 third party reviewed in conducting due diligence 

16 services; 

17 ‘‘(E) a description of relevant data about 

18 any obligor, issuer, security, or money market 

19 instrument that was used and relied on for the 

20 purpose of determining the credit rating; 

21 ‘‘(F) a statement containing an overall as22 sessment of the quality of information available 

23 and considered in producing a credit rating for 

24 a security in relation to the quality of informa25 tion available to the nationally recognized staVerDate Nov 24 2008 02:14 Oct 22, 2009 Jkt 089200 PO 00000 Frm 00028 Fmt 6652 Sfmt 6201 E:\BILLS\H3890.IH H3890

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1 tistical rating organization in rating similar ob2 ligors, securities, or money market instruments; 

3 ‘‘(G) an explanation or measure of the po4 tential volatility for the credit rating, including 

5 any factors that might lead to a change in the 

6 credit rating, and the extent of the change that 

7 might be anticipated under different conditions; 

8 ‘‘(H) information on the content of the 

9 credit rating, including— 

10 ‘‘(i) the expected default probability; 

11 and 

12 ‘‘(ii) the loss given default; 

13 ‘‘(I) information on the sensitivity of the 

14 rating to assumptions made by the nationally 

15 recognized statistical rating organization; 

16 ‘‘(J) where applicable, how the nationally 

17 recognized statistical rating organization used 

18 servicer or remittance reports, and with what 

19 frequency, to conduct surveillance of the credit 

20 rating; and 

21 ‘‘(K) such additional information as may 

22 be required by the Commission. 

23 ‘‘(4) DUE DILIGENCE SERVICES.— 

24 ‘‘(A) CERTIFICATION REQUIRED.—In any 

25 case in which third-party due diligence services 


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1 are employed by a nationally recognized statis2 tical rating organization or an issuer or under3 writer in connection with the issuance of a cred4 it rating, the firm providing the due diligence 

5 services shall provide to the nationally recog6 nized statistical rating organization written cer7 tification of such due diligence, which shall be 

8 subject to review by the Commission, and the 

9 issuer or underwriter shall provide any reports 

10 issued by the provider of such due diligence 

11 services to the nationally recognized statistical 

12 rating organization. 

13 ‘‘(B) FORMAT AND CONTENT.—The Com14 mission shall establish the appropriate format 

15 and content for written certifications required 

16 under subparagraph (A) to ensure that pro17 viders of due diligence services have conducted 

18 a thorough review of data, documentation, and 

19 other relevant information necessary for the na20 tionally recognized statistical rating organiza21 tion to provide an reliable rating. 

22 ‘‘(C) DISCLOSURE OF CERTIFICATION.— 

23 The Commission shall adopt rules requiring a 

24 nationally recognized statistical rating organiza25 tion to disclose to persons who have access to 


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1 the credit ratings of the nationally recognized 

2 statistical rating organization regardless of 

3 whether they are made readily accessible for 

4 free or a reasonable fee the certification de5 scribed in subparagraph (A) with the publica6 tion of the applicable credit rating in a manner 

7 that may permit the persons to determine the 

8 adequacy and level of due diligence services pro9 vided by the third party. 

10 ‘‘(t) PROHIBITED ACTIVITIES.— 

11 ‘‘(1) IN GENERAL.—Except as provided in para12 graph (2), beginning 180 days from the date of en13 actment of the Accountability, Reliability, and 

14 Transparency in Rating Agencies Act, it shall be un15 lawful for a nationally recognized statistical rating 

16 organization, or an affiliate of a nationally recog17 nized statistical rating organization, or any person 

18 associated with a nationally recognized statistical 

19 rating organization, to the extent determined appro20 priate by the Commission, that provides a rating for 

21 an issuer, underwriter, or placement agent of a secu22 rity to provide to that issuer, underwriter, or place23 ment agent, any non-rating service that preceded the 

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1 ment agent to provide a rating for the security in 

2 question or any assistance provided after such point 

3 for which additional compensation is paid directly or 

4 indirectly, including— 

5 ‘‘(A) risk management advisory services; 

6 ‘‘(B) advice or consultation relating to any 

7 merger, sales, or disposition of assets of the 

8 issuer; 

9 ‘‘(C) ancillary assistance, advice, or con10 sulting services unrelated to any specific credit 

11 rating issuance; and 

12 ‘‘(D) such further activities or services as 

13 the Commission may determine as necessary or 

14 appropriate in the public interest or for the pro15 tection of investors. 

16 ‘‘(2) EXEMPTION AUTHORITY.—The Commis17 sion may, on a case by case basis, exempt any per18 son, issuer, underwriter, placement agent, or nation19 ally recognized statistical rating organization from 

20 the prohibition in subsection (t), to the extent that 

21 such exemption is necessary or appropriate in the 

22 public interest and is consistent with the protection 

23 of investors, and subject to review by the Commis24 sion.’’. 


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1 SEC. 3. STANDARDS FOR PRIVATE ACTIONS. 

2 (a) IN GENERAL.—Section 21D(b)(2) of the Securi3 ties Exchange Act of 1934 (15 U.S.C. 78u–4(b)(2)) is 

4 amended by inserting before the period at the end of the 

5 following: ‘‘, and in the case of an action brought under 

6 this title for money damages against a nationally recog7 nized statistical rating organization, it shall be sufficient 

8 for purposes of pleading any required state of mind for 

9 purposes of such action that the complaint shall state with 

10 particularity facts giving rise to a strong inference that 

11 the nationally recognized statistical rating organization 

12 knowingly or recklessly violated the securities laws.’’. 

13 (b) PLEADING STANDARD.—Section 15E(m) of the 

14 Securities Exchange Act of 1934 (15 U.S.C. 78o–7(m)) 

15 amended to read as follows: 

16 ‘‘(m) APPLICATION OF ENFORCEMENT PROVISIONS; 

17 PLEADING STANDARD IN PRIVATE RIGHTS OF ACTION.— 

18 Statements made by nationally recognized statistical rat19 ing organizations shall not be deemed forward looking 

20 statements for purposes of section 21E. In any private 

21 right of action commenced against a nationally recognized 

22 statistical rating organization under this title, the same 

23 pleading standards with respect to knowledge and reck24 lessness shall apply to the nationally recognized statistical 

25 rating organization as would apply to any other person 


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1 in the same or a similar private right of action against 

2 such person.’’. 

3 SEC. 4. ISSUER DISCLOSURE OF PRELIMINARY RATINGS. 

4 The Securities and Exchange Commission shall adopt 

5 rules under authority of the Securities Act of 1933 (15 

6 U.S.C. 77a, et seq.) to require issuers to disclose prelimi7 nary credit ratings received from nationally recognized 

8 statistical rating agencies on structured products and all 

9 forms of corporate debt. 

10 SEC. 5. TIMELINE FOR REGULATIONS. 

11 Unless otherwise specified in this Act, the Securities 

12 and Exchange Commission shall adopt rules and regula13 tions, as required by the amendments made by this Act, 

14 not later than 365 days after the date of enactment. 

15 SEC. 6. FEDERAL AGENCY REVIEW OF RELIANCE ON RAT16 INGS. 

17 (a) REVIEW.—Not later than 1 year after the date 

18 of the enactment of this Act, each Federal agency and de19 partment shall, to the extent applicable, review— 

20 (1) any regulation issued by such agency or de21 partment that requires the use of an assessment of 

22 the creditworthiness of a security or money market 

23 instrument; and 

24 (2) its policies and practices with regard to 

25 such ratings, 


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1 to determine if another measure of creditworthiness is ap2 propriate in order to reduce the reliance of such agency 

3 on such ratings, to the extent permitted by law. 

4 (b) REPORT.—Upon conclusion of the review required 

5 under subsection (a), each Federal agency and department 

6 shall submit a report to the Congress containing a descrip7 tion of— 

8 (1) any modification of any regulation such 

9 agency or department made following the review re10 quired by subsection (a); and 

11 (2) each regulation issued by such agency or 

12 department that requires the use of an assessment 

13 of the creditworthiness of a security or money mar14 ket instrument that such agency or department did 

15 not modify pursuant to subsection (a), accompanied 

16 by an explanation of why such modification could 

17 not be made. 

18 SEC. 7. STUDIES AND REPORTS. 

19 (a) GAO STUDY.— 

20 (1) IN GENERAL.—The Comptroller General 

21 shall conduct a study of— 

22 (A) the implementation of this Act and the 

23 amendments made by this Act by the Securities 

24 and Exchange Commission; 


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1 (B) the appropriateness of relying on rat2 ings for use in Federal, State, and local securi3 ties and banking regulations, including for de4 termining capital requirements; 

5 (C) the effect of liability in private actions 

6 arising under the Securities Exchange Act of 

7 1934; and 

8 (D) alternative means for compensating 

9 credit rating agencies that would create incen10 tives for accurate credit ratings and what, if 

11 any, statutory changes would be required to 

12 permit or facilitate the use of such alternative 

13 means of compensation. 

14 (2) REPORT.—Not later than 30 months after 

15 the date of enactment of this Act, the Comptroller 

16 General shall submit to Congress and the Securities 

17 Exchange Commission, a report containing the find18 ings under the study required by subsection (a). 

19 (b) SEC STUDY.—The Securities and Exchange 

20 Commission shall undertake a study on creating a system 

21 whereby nationally recognized statistical rating organiza22 tions are assigned on a rotating basis to issuers seeking 

23 a credit rating. Not later than 1 year after the date of 

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1 mission shall transmit to Congress a report containing the 

2 findings of the study. 

Æ 


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