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[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 3850 Enrolled Bill (ENR)]

        S.3850

                       One Hundred Ninth Congress

                                 of the

                        United States of America

                          AT THE SECOND SESSION

          Begun and held at the City of Washington on Tuesday,
             the third day of January, two thousand and six

                                 An Act

 
 To improve ratings quality for the protection of investors and in the 
     public interest by fostering accountability, transparency, and 
            competition in the credit rating agency industry.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Credit Rating Agency Reform Act of 
2006''.

SEC. 2. FINDINGS.

    Upon the basis of facts disclosed by the record and report of the 
Securities and Exchange Commission made pursuant to section 702 of the 
Sarbanes-Oxley Act of 2002 (116 Stat. 797), hearings before the 
Committee on Banking, Housing, and Urban Affairs of the Senate and the 
Committee on Financial Services of the House of Representatives during 
the 108th and 109th Congresses, comment letters to the concept releases 
and proposed rules of the Commission, and facts otherwise disclosed and 
ascertained, Congress finds that credit rating agencies are of national 
importance, in that, among other things--
        (1) their ratings, publications, writings, analyses, and 
    reports are furnished and distributed, and their contracts, 
    subscription agreements, and other arrangements with clients are 
    negotiated and performed, by the use of the mails and other means 
    and instrumentalities of interstate commerce;
        (2) their ratings, publications, writings, analyses, and 
    reports customarily relate to the purchase and sale of securities 
    traded on securities exchanges and in interstate over-the-counter 
    markets, securities issued by companies engaged in business in 
    interstate commerce, and securities issued by national banks and 
    member banks of the Federal Reserve System;
        (3) the foregoing transactions occur in such volume as 
    substantially to affect interstate commerce, the securities 
    markets, the national banking system, and the national economy;
        (4) the oversight of such credit rating agencies serves the 
    compelling interest of investor protection;
        (5) the 2 largest credit rating agencies serve the vast 
    majority of the market, and additional competition is in the public 
    interest; and
        (6) the Commission has indicated that it needs statutory 
    authority to oversee the credit rating industry.

SEC. 3. DEFINITIONS.

    (a) Securities Exchange Act of 1934.--Section 3(a) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)) is amended by adding 
at the end the following new paragraphs:
        ``(60) Credit rating.--The term `credit rating' means an 
    assessment of the creditworthiness of an obligor as an entity or 
    with respect to specific securities or money market instruments.
        ``(61) Credit rating agency.--The term `credit rating agency' 
    means any person--
            ``(A) engaged in the business of issuing credit ratings on 
        the Internet or through another readily accessible means, for 
        free or for a reasonable fee, but does not include a commercial 
        credit reporting company;
            ``(B) employing either a quantitative or qualitative model, 
        or both, to determine credit ratings; and
            ``(C) receiving fees from either issuers, investors, or 
        other market participants, or a combination thereof.
        ``(62) Nationally recognized statistical rating organization.--
    The term `nationally recognized statistical rating organization' 
    means a credit rating agency that--
            ``(A) has been in business as a credit rating agency for at 
        least the 3 consecutive years immediately preceding the date of 
        its application for registration under section 15E;
            ``(B) issues credit ratings certified by qualified 
        institutional buyers, in accordance with section 
        15E(a)(1)(B)(ix), with respect to--
                ``(i) financial institutions, brokers, or dealers;
                ``(ii) insurance companies;
                ``(iii) corporate issuers;
                ``(iv) issuers of asset-backed securities (as that term 
            is defined in section 1101(c) of part 229 of title 17, Code 
            of Federal Regulations, as in effect on the date of 
            enactment of this paragraph);
                ``(v) issuers of government securities, municipal 
            securities, or securities issued by a foreign government; 
            or
                ``(vi) a combination of one or more categories of 
            obligors described in any of clauses (i) through (v); and
            ``(C) is registered under section 15E.
        ``(63) Person associated with a nationally recognized 
    statistical rating organization.--The term `person associated with' 
    a nationally recognized statistical rating organization means any 
    partner, officer, director, or branch manager of a nationally 
    recognized statistical rating organization (or any person occupying 
    a similar status or performing similar functions), any person 
    directly or indirectly controlling, controlled by, or under common 
    control with a nationally recognized statistical rating 
    organization, or any employee of a nationally recognized 
    statistical rating organization.
        ``(64) Qualified institutional buyer.--The term `qualified 
    institutional buyer' has the meaning given such term in section 
    230.144A(a) of title 17, Code of Federal Regulations, or any 
    successor thereto.''.
    (b) Applicable Definitions.--As used in this Act--
        (1) the term ``Commission'' means the Securities and Exchange 
    Commission; and
        (2) the term ``nationally recognized statistical rating 
    organization'' has the same meaning as in section 3(a)(62) of the 
    Securities Exchange Act of 1934, as added by this Act.

SEC. 4. REGISTRATION OF NATIONALLY RECOGNIZED STATISTICAL RATING 
              ORGANIZATIONS.

    (a) Amendment.--The Securities Exchange Act of 1934 is amended by 
inserting after section 15D (15 U.S.C. 78o-6) the following new 
section:

``SEC. 15E. REGISTRATION OF NATIONALLY RECOGNIZED STATISTICAL RATING 
              ORGANIZATIONS.

    ``(a) Registration Procedures.--
        ``(1) Application for registration.--
            ``(A) In general.--A credit rating agency that elects to be 
        treated as a nationally recognized statistical rating 
        organization for purposes of this title (in this section 
        referred to as the `applicant'), shall furnish to the 
        Commission an application for registration, in such form as the 
        Commission shall require, by rule or regulation issued in 
        accordance with subsection (n), and containing the information 
        described in subparagraph (B).
            ``(B) Required information.--An application for 
        registration under this section shall contain information 
        regarding--
                ``(i) credit ratings performance measurement statistics 
            over short-term, mid-term, and long-term periods (as 
            applicable) of the applicant;
                ``(ii) the procedures and methodologies that the 
            applicant uses in determining credit ratings;
                ``(iii) policies or procedures adopted and implemented 
            by the applicant to prevent the misuse, in violation of 
            this title (or the rules and regulations hereunder), of 
            material, nonpublic information;
                ``(iv) the organizational structure of the applicant;
                ``(v) whether or not the applicant has in effect a code 
            of ethics, and if not, the reasons therefor;
                ``(vi) any conflict of interest relating to the 
            issuance of credit ratings by the applicant;
                ``(vii) the categories described in any of clauses (i) 
            through (v) of section 3(a)(62)(B) with respect to which 
            the applicant intends to apply for registration under this 
            section;
                ``(viii) on a confidential basis, a list of the 20 
            largest issuers and subscribers that use the credit rating 
            services of the applicant, by amount of net revenues 
            received therefrom in the fiscal year immediately preceding 
            the date of submission of the application;
                ``(ix) on a confidential basis, as to each applicable 
            category of obligor described in any of clauses (i) through 
            (v) of section 3(a)(62)(B), written certifications 
            described in subparagraph (C), except as provided in 
            subparagraph (D); and
                ``(x) any other information and documents concerning 
            the applicant and any person associated with such applicant 
            as the Commission, by rule, may prescribe as necessary or 
            appropriate in the public interest or for the protection of 
            investors.
            ``(C) Written certifications.--Written certifications 
        required by subparagraph (B)(ix)--
                ``(i) shall be provided from not fewer than 10 
            qualified institutional buyers, none of which is affiliated 
            with the applicant;
                ``(ii) may address more than one category of obligors 
            described in any of clauses (i) through (v) of section 
            3(a)(62)(B);
                ``(iii) shall include not fewer than 2 certifications 
            for each such category of obligor; and
                ``(iv) shall state that the qualified institutional 
            buyer--

                    ``(I) meets the definition of a qualified 
                institutional buyer under section 3(a)(64); and
                    ``(II) has used the credit ratings of the applicant 
                for at least the 3 years immediately preceding the date 
                of the certification in the subject category or 
                categories of obligors.

            ``(D) Exemption from certification requirement.--A written 
        certification under subparagraph (B)(ix) is not required with 
        respect to any credit rating agency which has received, or been 
        the subject of, a no-action letter from the staff of the 
        Commission prior to August 2, 2006, stating that such staff 
        would not recommend enforcement action against any broker or 
        dealer that considers credit ratings issued by such credit 
        rating agency to be ratings from a nationally recognized 
        statistical rating organization.
            ``(E) Limitation on liability of qualified institutional 
        buyers.--No qualified institutional buyer shall be liable in 
        any private right of action for any opinion or statement 
        expressed in a certification made pursuant to subparagraph 
        (B)(ix).
        ``(2) Review of application.--
            ``(A) Initial determination.--Not later than 90 days after 
        the date on which the application for registration is furnished 
        to the Commission under paragraph (1) (or within such longer 
        period as to which the applicant consents) the Commission 
        shall--
                ``(i) by order, grant such registration for ratings in 
            the subject category or categories of obligors, as 
            described in clauses (i) through (v) of section 
            3(a)(62)(B); or
                ``(ii) institute proceedings to determine whether 
            registration should be denied.
            ``(B) Conduct of proceedings.--
                ``(i) Content.--Proceedings referred to in subparagraph 
            (A)(ii) shall--

                    ``(I) include notice of the grounds for denial 
                under consideration and an opportunity for hearing; and
                    ``(II) be concluded not later than 120 days after 
                the date on which the application for registration is 
                furnished to the Commission under paragraph (1).

                ``(ii) Determination.--At the conclusion of such 
            proceedings, the Commission, by order, shall grant or deny 
            such application for registration.
                ``(iii) Extension authorized.--The Commission may 
            extend the time for conclusion of such proceedings for not 
            longer than 90 days, if it finds good cause for such 
            extension and publishes its reasons for so finding, or for 
            such longer period as to which the applicant consents.
            ``(C) Grounds for decision.--The Commission shall grant 
        registration under this subsection--
                ``(i) if the Commission finds that the requirements of 
            this section are satisfied; and
                ``(ii) unless the Commission finds (in which case the 
            Commission shall deny such registration) that--

                    ``(I) the applicant does not have adequate 
                financial and managerial resources to consistently 
                produce credit ratings with integrity and to materially 
                comply with the procedures and methodologies disclosed 
                under paragraph (1)(B) and with subsections (g), (h), 
                (i), and (j); or
                    ``(II) if the applicant were so registered, its 
                registration would be subject to suspension or 
                revocation under subsection (d).

        ``(3) Public availability of information.--Subject to section 
    24, the Commission shall, by rule, require a nationally recognized 
    statistical rating organization, upon the granting of registration 
    under this section, to make the information and documents submitted 
    to the Commission in its completed application for registration, or 
    in any amendment submitted under paragraph (1) or (2) of subsection 
    (b), publicly available on its website, or through another 
    comparable, readily accessible means, except as provided in clauses 
    (viii) and (ix) of paragraph (1)(B).
    ``(b) Update of Registration.--
        ``(1) Update.--Each nationally recognized statistical rating 
    organization shall promptly amend its application for registration 
    under this section if any information or document provided therein 
    becomes materially inaccurate, except that a nationally recognized 
    statistical rating organization is not required to amend--
            ``(A) the information required to be furnished under 
        subsection (a)(1)(B)(i) by furnishing information under this 
        paragraph, but shall amend such information in the annual 
        submission of the organization under paragraph (2) of this 
        subsection; or
            ``(B) the certifications required to be provided under 
        subsection (a)(1)(B)(ix) by furnishing information under this 
        paragraph.
        ``(2) Certification.--Not later than 90 days after the end of 
    each calendar year, each nationally recognized statistical rating 
    organization shall furnish to the Commission an amendment to its 
    registration, in such form as the Commission, by rule, may 
    prescribe as necessary or appropriate in the public interest or for 
    the protection of investors--
            ``(A) certifying that the information and documents in the 
        application for registration of such nationally recognized 
        statistical rating organization (other than the certifications 
        required under subsection (a)(1)(B)(ix)) continue to be 
        accurate; and
            ``(B) listing any material change that occurred to such 
        information or documents during the previous calendar year.
    ``(c) Accountability for Ratings Procedures.--
        ``(1) Authority.--The Commission shall have exclusive authority 
    to enforce the provisions of this section in accordance with this 
    title with respect to any nationally recognized statistical rating 
    organization, if such nationally recognized statistical rating 
    organization issues credit ratings in material contravention of 
    those procedures relating to such nationally recognized statistical 
    rating organization, including procedures relating to the 
    prevention of misuse of nonpublic information and conflicts of 
    interest, that such nationally recognized statistical rating 
    organization--
            ``(A) includes in its application for registration under 
        subsection (a)(1)(B)(ii); or
            ``(B) makes and disseminates in reports pursuant to section 
        17(a) or the rules and regulations thereunder.
        ``(2) Limitation.--The rules and regulations that the 
    Commission may prescribe pursuant to this title, as they apply to 
    nationally recognized statistical rating organizations, shall be 
    narrowly tailored to meet the requirements of this title applicable 
    to nationally recognized statistical rating organizations. 
    Notwithstanding any other provision of law, neither the Commission 
    nor any State (or political subdivision thereof) may regulate the 
    substance of credit ratings or the procedures and methodologies by 
    which any nationally recognized statistical rating organization 
    determines credit ratings.
    ``(d) Censure, Denial, or Suspension of Registration; Notice and 
Hearing.--The Commission, by order, shall censure, place limitations on 
the activities, functions, or operations of, suspend for a period not 
exceeding 12 months, or revoke the registration of any nationally 
recognized statistical rating organization if the Commission finds, on 
the record after notice and opportunity for hearing, that such censure, 
placing of limitations, suspension, or revocation is necessary for the 
protection of investors and in the public interest and that such 
nationally recognized statistical rating organization, or any person 
associated with such an organization, whether prior to or subsequent to 
becoming so associated--
        ``(1) has committed or omitted any act, or is subject to an 
    order or finding, enumerated in subparagraph (A), (D), (E), (H), or 
    (G) of section 15(b)(4), has been convicted of any offense 
    specified in section 15(b)(4)(B), or is enjoined from any action, 
    conduct, or practice specified in subparagraph (C) of section 
    15(b)(4), during the 10-year period preceding the date of 
    commencement of the proceedings under this subsection, or at any 
    time thereafter;
        ``(2) has been convicted during the 10-year period preceding 
    the date on which an application for registration is furnished to 
    the Commission under this section, or at any time thereafter, of--
            ``(A) any crime that is punishable by imprisonment for 1 or 
        more years, and that is not described in section 15(b)(4)(B); 
        or
            ``(B) a substantially equivalent crime by a foreign court 
        of competent jurisdiction;
        ``(3) is subject to any order of the Commission barring or 
    suspending the right of the person to be associated with a 
    nationally recognized statistical rating organization;
        ``(4) fails to furnish the certifications required under 
    subsection (b)(2); or
        ``(5) fails to maintain adequate financial and managerial 
    resources to consistently produce credit ratings with integrity.
    ``(e) Termination of Registration.--
        ``(1) Voluntary withdrawal.--A nationally recognized 
    statistical rating organization may, upon such terms and conditions 
    as the Commission may establish as necessary in the public interest 
    or for the protection of investors, withdraw from registration by 
    furnishing a written notice of withdrawal to the Commission.
        ``(2) Commission authority.--In addition to any other authority 
    of the Commission under this title, if the Commission finds that a 
    nationally recognized statistical rating organization is no longer 
    in existence or has ceased to do business as a credit rating 
    agency, the Commission, by order, shall cancel the registration 
    under this section of such nationally recognized statistical rating 
    organization.
    ``(f) Representations.--
        ``(1) Ban on representations of sponsorship by united states or 
    agency thereof.--It shall be unlawful for any nationally recognized 
    statistical rating organization to represent or imply in any manner 
    whatsoever that such nationally recognized statistical rating 
    organization has been designated, sponsored, recommended, or 
    approved, or that the abilities or qualifications thereof have in 
    any respect been passed upon, by the United States or any agency, 
    officer, or employee thereof.
        ``(2) Ban on representation as nrsro of unregistered credit 
    rating agencies.--It shall be unlawful for any credit rating agency 
    that is not registered under this section as a nationally 
    recognized statistical rating organization to state that such 
    credit rating agency is a nationally recognized statistical rating 
    organization registered under this title.
        ``(3) Statement of registration under securities exchange act 
    of 1934 provisions.--No provision of paragraph (1) shall be 
    construed to prohibit a statement that a nationally recognized 
    statistical rating organization is a nationally recognized 
    statistical rating organization under this title, if such statement 
    is true in fact and if the effect of such registration is not 
    misrepresented.
    ``(g) Prevention of Misuse of Nonpublic Information.--
        ``(1) Organization policies and procedures.--Each nationally 
    recognized statistical rating organization shall establish, 
    maintain, and enforce written policies and procedures reasonably 
    designed, taking into consideration the nature of the business of 
    such nationally recognized statistical rating organization, to 
    prevent the misuse in violation of this title, or the rules or 
    regulations hereunder, of material, nonpublic information by such 
    nationally recognized statistical rating organization or any person 
    associated with such nationally recognized statistical rating 
    organization.
        ``(2) Commission authority.--The Commission shall issue final 
    rules in accordance with subsection (n) to require specific 
    policies or procedures that are reasonably designed to prevent 
    misuse in violation of this title (or the rules or regulations 
    hereunder) of material, nonpublic information.
    ``(h) Management of Conflicts of Interest.--
        ``(1) Organization policies and procedures.--Each nationally 
    recognized statistical rating organization shall establish, 
    maintain, and enforce written policies and procedures reasonably 
    designed, taking into consideration the nature of the business of 
    such nationally recognized statistical rating organization and 
    affiliated persons and affiliated companies thereof, to address and 
    manage any conflicts of interest that can arise from such business.
        ``(2) Commission authority.--The Commission shall issue final 
    rules in accordance with subsection (n) to prohibit, or require the 
    management and disclosure of, any conflicts of interest relating to 
    the issuance of credit ratings by a nationally recognized 
    statistical rating organization, including, without limitation, 
    conflicts of interest relating to--
            ``(A) the manner in which a nationally recognized 
        statistical rating organization is compensated by the obligor, 
        or any affiliate of the obligor, for issuing credit ratings or 
        providing related services;
            ``(B) the provision of consulting, advisory, or other 
        services by a nationally recognized statistical rating 
        organization, or any person associated with such nationally 
        recognized statistical rating organization, to the obligor, or 
        any affiliate of the obligor;
            ``(C) business relationships, ownership interests, or any 
        other financial or personal interests between a nationally 
        recognized statistical rating organization, or any person 
        associated with such nationally recognized statistical rating 
        organization, and the obligor, or any affiliate of the obligor;
            ``(D) any affiliation of a nationally recognized 
        statistical rating organization, or any person associated with 
        such nationally recognized statistical rating organization, 
        with any person that underwrites the securities or money market 
        instruments that are the subject of a credit rating; and
            ``(E) any other potential conflict of interest, as the 
        Commission deems necessary or appropriate in the public 
        interest or for the protection of investors.
    ``(i) Prohibited Conduct.--
        ``(1) Prohibited acts and practices.--The Commission shall 
    issue final rules in accordance with subsection (n) to prohibit any 
    act or practice relating to the issuance of credit ratings by a 
    nationally recognized statistical rating organization that the 
    Commission determines to be unfair, coercive, or abusive, including 
    any act or practice relating to--
            ``(A) conditioning or threatening to condition the issuance 
        of a credit rating on the purchase by the obligor or an 
        affiliate thereof of other services or products, including pre-
        credit rating assessment products, of the nationally recognized 
        statistical rating organization or any person associated with 
        such nationally recognized statistical rating organization;
            ``(B) lowering or threatening to lower a credit rating on, 
        or refusing to rate, securities or money market instruments 
        issued by an asset pool or as part of any asset-backed or 
        mortgage-backed securities transaction, unless a portion of the 
        assets within such pool or part of such transaction, as 
        applicable, also is rated by the nationally recognized 
        statistical rating organization; or
            ``(C) modifying or threatening to modify a credit rating or 
        otherwise departing from its adopted systematic procedures and 
        methodologies in determining credit ratings, based on whether 
        the obligor, or an affiliate of the obligor, purchases or will 
        purchase the credit rating or any other service or product of 
        the nationally recognized statistical rating organization or 
        any person associated with such organization.
        ``(2) Rule of construction.--Nothing in paragraph (1), or in 
    any rules or regulations adopted thereunder, may be construed to 
    modify, impair, or supersede the operation of any of the antitrust 
    laws (as defined in the first section of the Clayton Act, except 
    that such term includes section 5 of the Federal Trade Commission 
    Act, to the extent that such section 5 applies to unfair methods of 
    competition).
    ``(j) Designation of Compliance Officer.--Each nationally 
recognized statistical rating organization shall designate an 
individual responsible for administering the policies and procedures 
that are required to be established pursuant to subsections (g) and 
(h), and for ensuring compliance with the securities laws and the rules 
and regulations thereunder, including those promulgated by the 
Commission pursuant to this section.
    ``(k) Statements of Financial Condition.--Each nationally 
recognized statistical rating organization shall, on a confidential 
basis, furnish to the Commission, at intervals determined by the 
Commission, such financial statements, certified (if required by the 
rules or regulations of the Commission) by an independent public 
accountant, and information concerning its financial condition, as the 
Commission, by rule, may prescribe as necessary or appropriate in the 
public interest or for the protection of investors.
    ``(l) Sole Method of Registration.--
        ``(1) In general.--On and after the effective date of this 
    section, a credit rating agency may only be registered as a 
    nationally recognized statistical rating organization for any 
    purpose in accordance with this section.
        ``(2) Prohibition on reliance on no-action relief.--On and 
    after the effective date of this section--
            ``(A) an entity that, before that date, received advice, 
        approval, or a no-action letter from the Commission or staff 
        thereof to be treated as a nationally recognized statistical 
        rating organization pursuant to the Commission rule at section 
        240.15c3-1 of title 17, Code of Federal Regulations, may 
        represent itself or act as a nationally recognized statistical 
        rating organization only--
                ``(i) during Commission consideration of the 
            application, if such entity has furnished an application 
            for registration under this section; and
                ``(ii) on and after the date of approval of its 
            application for registration under this section; and
            ``(B) the advice, approval, or no-action letter described 
        in subparagraph (A) shall be void.
        ``(3) Notice to other agencies.--Not later than 30 days after 
    the date of enactment of this section, the Commission shall give 
    notice of the actions undertaken pursuant to this section to each 
    Federal agency which employs in its rules and regulations the term 
    `nationally recognized statistical rating organization' (as that 
    term is used under Commission rule 15c3-1 (17 C.F.R. 240.15c3-1), 
    as in effect on the date of enactment of this section).
    ``(m) Rules of Construction.--
        ``(1) No waiver of rights, privileges, or defenses.--
    Registration under and compliance with this section does not 
    constitute a waiver of, or otherwise diminish, any right, 
    privilege, or defense that a nationally recognized statistical 
    rating organization may otherwise have under any provision of State 
    or Federal law, including any rule, regulation, or order 
    thereunder.
        ``(2) No private right of action.--Nothing in this section may 
    be construed as creating any private right of action, and no report 
    furnished by a nationally recognized statistical rating 
    organization in accordance with this section or section 17 shall 
    create a private right of action under section 18 or any other 
    provision of law.
    ``(n) Regulations.--
        ``(1) New provisions.--Such rules and regulations as are 
    required by this section or are otherwise necessary to carry out 
    this section, including the application form required under 
    subsection (a)--
            ``(A) shall be issued by the Commission in final form, not 
        later than 270 days after the date of enactment of this 
        section; and
            ``(B) shall become effective not later than 270 days after 
        the date of enactment of this section.
        ``(2) Review of existing regulations.--Not later than 270 days 
    after the date of enactment of this section, the Commission shall--
            ``(A) review its existing rules and regulations which 
        employ the term `nationally recognized statistical rating 
        organization' or `NRSRO'; and
            ``(B) amend or revise such rules and regulations in 
        accordance with the purposes of this section, as the Commission 
        may prescribe as necessary or appropriate in the public 
        interest or for the protection of investors.
    ``(o) NRSROs Subject to Commission Authority.--
        ``(1) In general.--No provision of the laws of any State or 
    political subdivision thereof requiring the registration, 
    licensing, or qualification as a credit rating agency or a 
    nationally recognized statistical rating organization shall apply 
    to any nationally recognized statistical rating organization or 
    person employed by or working under the control of a nationally 
    recognized statistical rating organization.
        ``(2) Limitation.--Nothing in this subsection prohibits the 
    securities commission (or any agency or office performing like 
    functions) of any State from investigating and bringing an 
    enforcement action with respect to fraud or deceit against any 
    nationally recognized statistical rating organization or person 
    associated with a nationally recognized statistical rating 
    organization.
    ``(p) Applicability.--This section, other than subsection (n), 
which shall apply on the date of enactment of this section, shall apply 
on the earlier of--
        ``(1) the date on which regulations are issued in final form 
    under subsection (n)(1); or
        ``(2) 270 days after the date of enactment of this section.''.
    (b) Conforming Amendments.--
        (1) Securities exchange act of 1934.--The Securities Exchange 
    Act of 1934 (15 U.S.C. 78 et seq.) is amended--
            (A) in section 15(b)(4) (15 U.S.C. 78o(b)(4))--
                (i) in subparagraph (B)(ii), by inserting ``nationally 
            recognized statistical rating organization,'' after 
            ``transfer agent,''; and
                (ii) in subparagraph (C), by inserting ``nationally 
            recognized statistical rating organization,'' after 
            ``transfer agent,''; and
            (B) in section 21B(a) (15 U.S.C. 78u-2(a)), by inserting 
        ``15E,'' after ``15C,''.
        (2) Investment company act of 1940.--The Investment Company Act 
    of 1940 (15 U.S.C. 80a et seq.) is amended--
            (A) in section 2(a) (15 U.S.C. 80a-2(a)), by adding at the 
        end the following new paragraph:
        ``(53) The term `credit rating agency' has the same meaning as 
    in section 3 of the Securities Exchange Act of 1934.''; and
            (B) in section 9(a) (15 U.S.C. 80a-9(a))--
                (i) in paragraph (1), by inserting ``credit rating 
            agency,'' after ``transfer agent,''; and
                (ii) in paragraph (2), by inserting ``credit rating 
            agency,'' after ``transfer agent,''.
        (3) Investment advisers act of 1940.--The Investment Advisers 
    Act of 1940 (15 U.S.C. 80b et seq.) is amended--
            (A) in section 202(a) (15 U.S.C. 80b-2(a)), by adding at 
        the end the following new paragraph:
        ``(28) The term `credit rating agency' has the same meaning as 
    in section 3 of the Securities Exchange Act of 1934.'';
            (B) in section 202(a)(11) (15 U.S.C. 80b-2(a)(11)), by 
        striking ``or (F)'' and inserting the following: ``(F) any 
        nationally recognized statistical rating organization, as that 
        term is defined in section 3(a)(62) of the Securities Exchange 
        Act of 1934, unless such organization engages in issuing 
        recommendations as to purchasing, selling, or holding 
        securities or in managing assets, consisting in whole or in 
        part of securities, on behalf of others; or (G)''; and
            (C) in section 203(e) (15 U.S.C. 80b-3(e))--
                (i) in paragraph (2)(B), by inserting ``credit rating 
            agency,'' after ``transfer agent,''; and
                (ii) in paragraph (4), by inserting ``credit rating 
            agency,'' after ``transfer agent,''.
        (4) Housing and community development act of 1992.--Section 
    1319 of the Housing and Community Development Act of 1992 (12 
    U.S.C. 4519) is amended by striking ``effectively'' and all that 
    follows through ``broker-dealers'' and inserting ``that is a 
    nationally recognized statistical rating organization, as such term 
    is defined in section 3(a) of the Securities Exchange Act of 
    1934''.
        (5) Higher education act of 1965.--Section 439(r)(15)(A) of the 
    Higher Education Act of 1965 (20 U.S.C. 1087-2(r)(15)(A)) is 
    amended by striking ``means any entity recognized as such by the 
    Securities and Exchange Commission'' and inserting ``means any 
    nationally recognized statistical rating organization, as that term 
    is defined in section 3(a) of the Securities Exchange Act of 
    1934''.
        (6) Title 23.--Section 181(11) of title 23, United States Code, 
    is amended by striking ``identified by the Securities and Exchange 
    Commission as a nationally recognized statistical rating 
    organization'' and inserting ``registered with the Securities and 
    Exchange Commission as a nationally recognized statistical rating 
    organization, as that term is defined in section 3(a) of the 
    Securities Exchange Act of 1934''.

SEC. 5. ANNUAL AND OTHER REPORTS.

    Section 17(a)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 
78q(a)(1)) is amended--
        (1) by inserting ``nationally recognized statistical rating 
    organization,'' after ``registered transfer agent,''; and
        (2) by adding at the end the following: ``Any report that a 
    nationally recognized statistical rating organization is required 
    by Commission rules under this paragraph to make and disseminate to 
    the Commission shall be deemed furnished to the Commission.''.

SEC. 6. COMMISSION ANNUAL REPORT.

    The Commission shall submit an annual report to the Committee on 
Banking, Housing, and Urban Affairs of the Senate and the Committee on 
Financial Services of the House of Representatives that, with respect 
to the year to which the report relates--
        (1) identifies applicants for registration under section 15E of 
    the Securities Exchange Act of 1934, as added by this Act;
        (2) specifies the number of and actions taken on such 
    applications; and
        (3) specifies the views of the Commission on the state of 
    competition, transparency, and conflicts of interest among 
    nationally recognized statistical rating organizations.

SEC. 7. GAO STUDY AND REPORT REGARDING NATIONALLY RECOGNIZED 
              STATISTICAL RATING ORGANIZATIONS.

    (a) Study Required.--The Comptroller General of the United States 
shall conduct a study--
        (1) to determine the impact of this Act and the amendments made 
    by this Act on--
            (A) the quality of credit ratings issued by nationally 
        recognized statistical ratings organizations;
            (B) the financial markets;
            (C) competition among credit rating agencies;
            (D) the incidence of inappropriate conflicts of interest 
        and sales practices by nationally recognized statistical rating 
        organizations;
            (E) the process for registering as a nationally recognized 
        statistical rating organization; and
            (F) such other matters relevant to the implementation of 
        this Act and the amendments made by this Act, as the 
        Comptroller General deems necessary to bring to the attention 
        of the Congress;
        (2) to identify problems, if any, that have resulted from the 
    implementation of this Act and the amendments made by this Act; and
        (3) to recommend solutions, including any legislative or 
    regulatory solutions, to any problems identified under paragraphs 
    (1) and (2).
    (b) Report Required.--Not earlier than 3 years nor later than 4 
years after the date of enactment of this Act, the Comptroller General 
shall submit a report on the results of the study required by this 
section to the Committee on Banking, Housing, and Urban Affairs of the 
Senate and the Committee on Financial Services of the House of 
Representatives.

                               Speaker of the House of Representatives.

                            Vice President of the United States and    
                                               President of the Senate.
```