HR 3214 IH 
lihood of the change resulting in current credit rat-
ings being subject to rating actions. 
‘‘(s) TRANSPARENCY
OF CREDIT RATING METH-
ODOLOGIES AND INFORMATION REVIEWED.— 
‘‘(1) IN GENERAL.—The Commission shall es-
tablish a form, to accompany each rating issued by 
a nationally recognized statistical rating organiza-
tion— 
‘‘(A) to disclose information about assump-
tions underlying credit rating procedures and 
methodologies, the data that was relied on to 
determine the credit rating and, where applica-
ble, how the nationally recognized statistical 
rating organization used servicer or remittance 
reports, and with what frequency, to conduct 
surveillance of the credit rating; and 
‘‘(B) that can be made public and used by 
investors and other users to better understand 
credit ratings issued in each class of credit rat-
ing issued by the nationally recognized statis-
tical rating organization. 
‘‘(2) FORMAT.—The Commission shall ensure 
that the form established under paragraph (1)— 
‘‘(A) is designed in a user-friendly and 
helpful manner for users of credit ratings to 
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understand the information contained in the re-
port; and 
‘‘(B) requires the nationally recognized 
statistical rating organization to provide the ap-
propriate content, as required by paragraph (3). 
‘‘(3) CONTENT.—Each nationally recognized 
statistical rating organization shall include on the 
form established under this subsection, along with 
its ratings— 
‘‘(A) the main assumptions included in 
constructing procedures and methodologies, in-
cluding qualitative and quantitative models; 
‘‘(B) the potential shortcomings of the 
credit ratings, and the types of risks excluded 
from the credit ratings that the registrant is 
not commenting on (such as liquidity, market, 
and other risks); 
‘‘(C) information on the reliability, accu-
racy, and quality of the data relied on in deter-
mining the ultimate credit rating and a state-
ment on the extent to which key data inputs for 
the credit rating were reliable or limited (in-
cluding, any limits on the reach of historical 
data, limits in accessibility to certain documents 
or other forms of information that would have 
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better informed the credit rating, and the com-
pleteness of certain information considered); 
‘‘(D) whether and to what extent third 
party due diligence services have been utilized, 
and a description of the information that such 
third party reviewed in conducting due diligence 
services; 
‘‘(E) a description of relevant data about 
any obligor, issuer, security, or money market 
instrument that was used and relied on for the 
purpose of determining the credit rating; 
‘‘(F) an explanation or measure of the po-
tential volatility for the rating, including any 
factors that might lead to a change in the rat-
ing, and the extent of the change that might be 
anticipated under different conditions; and 
‘‘(G) additional information, including con-
flict of interest information, as may be required 
by the Commission. 
‘‘(4) DUE DILIGENCE SERVICES.— 
‘‘(A) CERTIFICATION REQUIRED.—In any 
case in which third party due diligence services 
are employed by a nationally recognized statis-
tical rating organization or an issuer or under-
writer, the firm providing the due diligence 
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services shall provide to the nationally recog-
nized statistical rating organization written cer-
tification of such due diligence, which shall be 
subject to review by the Commission. 
‘‘(B) FORMAT
AND
CONTENT.—The na-
tionally recognized statistical rating organiza-
tions shall establish the appropriate format and 
content for written certifications required under 
subparagraph (A), to ensure that providers of 
due diligence services have conducted a thor-
ough review of data, documentation, and other 
relevant information necessary for the nation-
ally recognized statistical rating organization to 
provide an accurate rating.’’; and 
(7) by amending subsection (m) to read as fol-
lows: 
‘‘(m) ACCOUNTABILITY.— 
‘‘(1) IN GENERAL.—The enforcement and pen-
alty provisions of this title shall apply to a nationally 
recognized statistical rating organization in the same 
manner and to the same extent as such provisions 
apply to a registered public accounting firm or a se-
curities analyst under the Federal securities laws for 
statements made by them, and such statements shall 
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not be deemed forward-looking statements for pur-
poses of section 21E. 
‘‘(2) RULEMAKING.—The Commission shall 
issue such rules as may be necessary to carry out 
this subsection.’’. 
SEC. 4. STATE OF MIND IN PRIVATE ACTIONS. 
Section 21D(b)(2) of the Securities Exchange Act of 
1934 (15 U.S.C. 78u–4(b)(2)) is amended by inserting be-
fore the period at the end the following: ‘‘, except that 
in the case of an action brought under this title for money 
damages against a nationally recognized statistical rating 
organization, it shall be sufficient, for purposes of pleading 
any required state of mind for purposes of such action, 
that the complaint shall state with particularity facts giv-
ing rise to a strong inference that the nationally recog-
nized statistical rating organization knowingly or reck-
lessly failed either to conduct a reasonable investigation 
of the rated security with respect to the factual elements 
relied upon by its own methodology for evaluating credit 
risk, or to obtain reasonable verification of such factual 
elements (which verification may be based on a sampling 
technique that does not amount to an audit) from other 
sources that it considered to be competent and that were 
independent of the issuer and underwriter’’. 
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SEC. 5. REGULATIONS. 
The Securities and Exchange Commission shall issue 
final rules and regulations, as required by the amend-
ments made by this Act, not later than 365 days after 
the date of enactment of this Act. 
SEC. 6. STUDY AND REPORT. 
(a) STUDY.—The Comptroller General of the United 
States shall undertake a study of— 
(1) the extent to which rulemaking the Securi-
ties and Exchange Commission has carried out the 
provisions of this Act; 
(2) the appropriateness of relying on ratings for 
use in Federal, State, and local securities and bank-
ing regulations, including for determining capital re-
quirements; 
(3) the effect of liability in private actions aris-
ing under the Securities Exchange Act of 1934 and 
the exception added by section 4 of this Act; and 
(4) alternative means for compensating credit 
rating agencies that would create incentives for ac-
curate credit ratings and what, if any, statutory 
changes would be required to permit or facilitate the 
use of such alternative means of compensation. 
(b) REPORT.—Not later than 30 months after the 
date of enactment of this Act, the Comptroller General 
shall submit to Congress and the Securities Exchange 
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Commission, a report containing the findings under the 
study required by subsection (a). 
Æ 
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