IB 
Union Calendar No. 406 
111TH CONGRESS 
2D SESSION 
H. R. 3890 
[Report No. 111–685, Part I] 
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 
DECEMBER 16, 2010 
Reported with an amendment, and referred to the Committee on the Judiciary 
for a period ending not later than December 17, 2010, for consideration 
of such provisions of the bill and amendment as fall within the jurisdic-
tion of that committee pursuant to clause 1(k) of rule X 
[Strike out all after the enacting clause and insert the part printed in italic] 
DECEMBER 17, 2010 
Committee on the Judiciary discharged; committed to the Committee of the 
Whole House on the State of the Union and ordered to be printed 
[For text of introduced bill, see copy of bill as introduced on October 21, 2009] 
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A BILL 
To amend the Securities Exchange Act of 1934 to enhance 
oversight of nationally recognized statistical rating orga-
nizations, and for other purposes. 
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Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This title may be cited as the ‘‘Accountability and 
Transparency in Rating Agencies Act’’. 
SEC. 2. ENHANCED REGULATION OF NATIONALLY RECOG-
NIZED 
STATISTICAL 
RATING 
ORGANIZA-
TIONS. 
Section 15E of the Securities Exchange Act of 1934 
(15 U.S.C. 78o–7) is amended— 
(1) in subsection (a)— 
(A) in paragraph (1)(A), by striking ‘‘fur-
nish to’’ and inserting ‘‘file with’’; 
(B) in paragraph (2)(A), by striking ‘‘fur-
nished to’’ and inserting ‘‘filed with’’; and 
(C) in paragraph (2)(B)(i)(II), by striking 
‘‘furnished to’’ and inserting ‘‘filed with’’; 
(2) in subsection (b)— 
(A) in paragraph (1)(A), by striking ‘‘fur-
nished’’ and inserting ‘‘filed’’ and by striking 
‘‘furnishing’’ and inserting ‘‘filing’’; 
(B) in paragraph (1)(B), by striking ‘‘fur-
nishing’’ and inserting ‘‘filing’’; and 
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(C) in the first sentence of paragraph (2), 
by striking ‘‘furnish to’’ and inserting ‘‘file 
with’’; 
(3) in subsection (c)— 
(A) paragraph (2)— 
(i) in the second sentence by inserting 
‘‘including the requirements of this section,’’ 
after ‘‘Notwithstanding any other provision 
of law,’’; and 
(ii) by inserting before the period at 
the end of the last sentence ‘‘, provided that 
this paragraph does not afford a defense 
against any action or proceeding brought by 
the Commission to enforce the antifraud 
provision of the securities laws’’; 
(B) by adding at the end the following new 
paragraph: 
‘‘(3) REVIEW OF INTERNAL PROCESSES FOR DE-
TERMINING CREDIT RATINGS.— 
‘‘(A) IN GENERAL.—The Commission shall 
examine credit ratings issued by, and the poli-
cies, procedures, and methodologies employed by, 
each nationally recognized statistical rating or-
ganization to review whether— 
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‘‘(i) the nationally recognized statis-
tical rating organization has established 
and documented a system of internal con-
trols, due diligence and implementation of 
methodologies for determining credit rat-
ings, taking into consideration such factors 
as the Commission may prescribe by rule; 
‘‘(ii) the nationally recognized statis-
tical rating organization adheres to such 
system; and 
‘‘(iii) the public disclosures of the na-
tionally recognized statistical rating organi-
zation required under this section about its 
credit ratings, methodologies, and proce-
dures are consistent with such system. 
‘‘(B) MANNER AND FREQUENCY.—The Com-
mission shall conduct reviews required by this 
paragraph no less frequently than annually in a 
manner to be determined by the Commission. 
‘‘(4) PROVISION OF INFORMATION TO THE COM-
MISSION.—Each nationally recognized statistical rat-
ing organization shall make available and maintain 
such records and information, for such a period of 
time, as the Commission may prescribe, by rule, as 
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necessary for the Commission to conduct the reviews 
under paragraph (3). 
‘‘(5) DISCLOSURES WITH RESPECT TO STRUC-
TURED SECURITIES.— 
‘‘(A) REGULATIONS REQUIRED.—The rules 
and regulations prescribed by the Commission 
pursuant to this section with respect to nation-
ally recognized statistical rating organizations 
shall, with respect to the procedures and meth-
odologies by which any nationally recognized 
statistical rating organization determines credit 
ratings for structured securities— 
‘‘(i) specify the information required to 
be disclosed to such rating organizations by 
the sponsor, issuers, and underwriters of 
such structured securities on the collateral 
underlying such structured securities; and 
‘‘(ii) establish and implement proce-
dures to collect and disclose information 
about the processes used by such sponsor, 
issuers, and underwriters to assess the accu-
racy and integrity of their data and fraud 
detection. 
‘‘(B) DEFINITION.—For purposes of this 
paragraph, the Commission shall, by rule or reg-
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ulation, define the term ‘structured securities’ as 
appropriate in the public interest and for the 
protection of investors. 
‘‘(6) 
HISTORICAL
DEFAULT
RATE
DISCLO-
SURES.—The rules and regulations prescribed by the 
Commission pursuant to this section with respect to 
nationally recognized statistical rating organizations 
shall require each nationally recognized statistical 
rating organization to establish and maintain, on a 
publicly accessible Internet site, a facility to disclose, 
in a central database, the historical default rates of 
all classes of financial products rated by such organi-
zation.’’ 
(4) in subsection (d)— 
(A) in the heading, by inserting ‘‘FINE,’’ 
after ‘‘CENSURE,’’; 
(B) by striking ‘‘shall censure’’ and all that 
follows through ‘‘revocation’’ and inserting the 
following: ‘‘shall censure, fine in accordance with 
section 21B(a), place limitations on the activi-
ties, functions, or operations of, suspend for a 
period not exceeding 12 months, or revoke the 
registration of any nationally recognized statis-
tical rating organization (or with respect to any 
person who is associated, who is seeking to be-
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come associated, or, at the time of the alleged 
misconduct, who was associated or was seeking 
to become associated with a nationally recog-
nized statistical rating organization, the Com-
mission, by order, shall censure, fine in accord-
ance with section 21B(a), place limitations on 
the activities or functions of such person, sus-
pend for a period not exceeding 12 months, or 
bar such person from being associated with a na-
tionally recognized statistical rating organiza-
tion), if the Commission finds, on the record 
after notice and opportunity for hearing, that 
such censure, fine, placing of limitations, bar, 
suspension, or revocation’’; 
(C) in paragraph (2), by striking ‘‘fur-
nished to’’ and inserting ‘‘filed with’’; 
(D) in paragraph (4)— 
(i) by striking ‘‘furnish’’ and inserting 
‘‘file’’; 
(ii) by striking ‘‘or’’ at the end; 
(E) in paragraph (5), by striking the period 
at the end and inserting a semicolon; and 
(F) by adding at the end the following: 
‘‘(6) has failed reasonably to supervise another 
person who commits a violation of the securities laws, 
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the rules or regulations thereunder, or any rules of the 
Municipal Securities Rulemaking Board if such other 
person is subject to his or her supervision, except that 
no person shall be deemed to have failed reasonably 
to supervise any other person under this paragraph, 
if— 
‘‘(A) there have been established procedures, 
and a system for applying such procedures, 
which would reasonably be expected to prevent 
and detect, insofar as practicable, any such vio-
lation by such other person, and 
‘‘(B) such person has reasonably discharged 
the duties and obligations incumbent upon him 
or her by reason of such procedures and system 
without reasonable cause to believe that such pro-
cedures and system were not being complied 
with; or 
‘‘(7) fails to conduct sufficient surveillance to en-
sure that credit ratings remain current and reliable, 
as applicable.’’; 
(5) in subsection (e)— 
(A) by striking paragraph (1); and 
(B) in paragraph (2), by striking ‘‘(2) 
COMMISSION
AUTHORITY.—’’ and moving the 
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text of such paragraph to follow the heading of 
subsection (e); 
(6) by amending subsection (h) to read as fol-
lows: 
‘‘(h) CORPORATE GOVERNANCE, ORGANIZATION, AND 
MANAGEMENT OF CONFLICTS OF INTEREST.— 
‘‘(1) BOARD OF DIRECTORS.— 
‘‘(A) IN GENERAL.—Each nationally recog-
nized statistical rating organization or its ulti-
mate holding company shall have a board of di-
rectors. 
‘‘(B) INDEPENDENT
DIRECTORS.—At least 
1⁄3 of such board, but no less than 2 of the mem-
bers of the board of directors, shall be inde-
pendent directors. In order to be considered inde-
pendent for purposes of this subsection, a direc-
tor of a nationally recognized statistical rating 
organization may not, other than in his or her 
capacity as a member of the board of directors 
or any committee thereof— 
‘‘(i) accept any consulting, advisory, or 
other compensatory fee from the nationally 
recognized statistical rating organization; 
or 
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‘‘(ii) be a person associated with the 
nationally recognized statistical rating or-
ganization or with any affiliated company 
thereof. 
‘‘(C) COMPENSATION AND TERM.—The com-
pensation of the independent directors shall not 
be linked to the business performance of the na-
tionally recognized statistical rating organiza-
tion and shall be arranged so as to ensure the 
independence of their judgment. The term of of-
fice of the independent directors shall be for a 
pre-agreed fixed period not exceeding 5 years 
and shall not be renewable. 
‘‘(D) DUTIES.—In addition to the overall 
responsibility of the board of directors, the board 
shall oversee— 
‘‘(i) the establishment, maintenance, 
and enforcement of policies and procedures 
for determining credit ratings; 
‘‘(ii) the establishment, maintenance, 
and enforcement of policies and procedures 
to address, manage, and disclose any con-
flicts of interest; 
‘‘(iii) the effectiveness of the internal 
control system with respect to policies and 
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procedures for determining credit ratings; 
and 
‘‘(iv) the compensation and promotion 
policies and practices of the nationally rec-
ognized statistical rating organization. 
‘‘(2) ORGANIZATION
POLICIES
AND
PROCE-
DURES.—Each nationally recognized statistical rat-
ing organization shall establish, maintain, and en-
force written policies and procedures reasonably de-
signed, taking into consideration the nature of the 
business of the nationally recognized statistical rating 
organization and affiliated persons and affiliated 
companies thereof, to address, manage, and disclose 
any conflicts of interest that can arise from such busi-
ness. 
‘‘(3) COMMISSION
RULES.—The Commission 
shall issue rules to prohibit, or require the manage-
ment and disclosure of, any conflicts of interest relat-
ing to the issuance of credit ratings by a nationally 
recognized statistical rating organization, including 
rules regarding— 
‘‘(A) conflicts of interest relating to the 
manner in which a nationally recognized statis-
tical rating organization is compensated by the 
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obligor, or any affiliate of the obligor, for issuing 
credit ratings or providing related services; 
‘‘(B) conflicts of interest relating to business 
relationships, ownership interests, and affili-
ations of nationally recognized statistical rating 
organization board members with obligors, or 
any other financial or personal interests between 
a nationally recognized statistical rating organi-
zation, or any person associated with such na-
tionally recognized statistical rating organiza-
tion, and the obligor, or any affiliate of the obli-
gor; 
‘‘(C) conflicts of interest relating to any af-
filiation of a nationally recognized statistical 
rating organization, or any person associated 
with such nationally recognized statistical rating 
organization, with any person who underwrites 
securities, money market instruments, or other 
instruments that are the subject of a credit rat-
ing; 
‘‘(D) a requirement that each nationally 
recognized statistical rating organization disclose 
on such organization’s website a consolidated re-
port at the end of each fiscal year that shows— 
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‘‘(i) the percent of net revenue earned 
by the nationally recognized statistical rat-
ing organization or an affiliate of a nation-
ally recognized statistical rating organiza-
tion, or any person associated with a na-
tionally recognized statistical rating organi-
zation, to the extent determined appropriate 
by the Commission, for that fiscal year for 
providing services and products other than 
credit rating services to each person who 
paid for a credit rating; and 
‘‘(ii) the relative standing of each per-
son who paid for a credit rating that was 
outstanding as of the end of the fiscal year 
in terms of the amount of net revenue 
earned by the nationally recognized statis-
tical rating organization attributable to 
each such person and classified by the high-
est 5, 10, 25, and 50 percentiles and lowest 
50 and 25 percentiles; 
‘‘(E) the establishment of a system of pay-
ment for credit ratings issued by each nationally 
recognized statistical rating organization that 
requires that payments are structured in a man-
ner designed to ensure that the nationally recog-
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nized statistical rating organization conducts ac-
curate and reliable surveillance of credit ratings 
over time, as applicable, and that incentives for 
reliable credit ratings are in place; 
‘‘(F) a requirement that a nationally recog-
nized statistical rating organization disclose 
with the publication of a credit rating the type 
and number of credit ratings it has provided to 
the person being rated or affiliates of such per-
son, the fees it has billed for the credit rating, 
and the aggregate amount of net revenue earned 
by the nationally recognized statistical rating or-
ganization in the preceding 2 fiscal years attrib-
utable to the person being rated and its affiliates; 
and 
‘‘(G) any other potential conflict of interest, 
as the Commission determines necessary or ap-
propriate in the public interest or for the protec-
tion of investors. 
‘‘(4) LOOK-BACK REQUIREMENT.— 
‘‘(A) REVIEW BY THE NATIONALLY RECOG-
NIZED
STATISTICAL
RATING
ORGANIZATION.— 
Each nationally recognized statistical rating or-
ganization shall establish, maintain, and enforce 
policies and procedures reasonably designed to 
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ensure that, in any case in which an employee 
of a person subject to a credit rating of the na-
tionally recognized statistical rating organiza-
tion or the issuer, underwriter, or sponsor of a 
security or money market instrument subject to 
a credit rating of the nationally recognized sta-
tistical rating organization was employed by the 
nationally recognized statistical rating organiza-
tion and participated in any capacity in deter-
mining credit ratings for the person or the secu-
rities or money market instruments during the 
1-year period preceding the date an action was 
taken with respect to the credit rating, the na-
tionally recognized statistical rating organiza-
tion shall— 
‘‘(i) conduct a review to determine 
whether any conflicts of interest of the em-
ployee influenced the credit rating; and 
‘‘(ii) take action to revise the rating if 
appropriate, in accordance with such rules 
as the Commission shall prescribe. 
‘‘(B) REVIEW BY COMMISSION.— 
‘‘(i) IN
GENERAL.—The Commission 
shall conduct periodic reviews of the policies 
described in subparagraph (A) and the im-
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plementation of the policies at each nation-
ally recognized statistical rating organiza-
tion to ensure they are reasonably designed 
and implemented to most effectively elimi-
nate conflicts of interest. 
‘‘(ii) TIMING OF REVIEWS.—The Com-
mission shall review the code of ethics and 
conflict of interest policy of each nationally 
recognized statistical rating organization— 
‘‘(I) not less frequently than an-
nually; and 
‘‘(II) whenever such policies are 
materially modified or amended. 
‘‘(5) REPORT TO COMMISSION ON CERTAIN EM-
PLOYMENT TRANSITIONS.— 
‘‘(A) REPORT REQUIRED.—Each nationally 
recognized statistical rating organization shall 
report to the Commission any case such organi-
zation knows or can reasonably be expected to 
know where a person associated with such orga-
nization within the previous 5 years obtains em-
ployment with any obligor, issuer, underwriter, 
or sponsor of a security or money market instru-
ment for which the organization issued a credit 
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rating during the 12-month period prior to such 
employment, if such employee— 
‘‘(i) was a senior officer of such orga-
nization; 
‘‘(ii) participated in any capacity in 
determining credit ratings for such obligor, 
issuer, underwriter, or sponsor; or 
‘‘(iii) supervised an employee described 
in clause (ii). 
‘‘(B) PUBLIC DISCLOSURE.—Upon receiving 
such a report, the Commission shall make such 
information publicly available.’’; 
(7) by amending subsection (j) to read as follows: 
‘‘(j) DESIGNATION OF COMPLIANCE OFFICER.— 
‘‘(1) IN GENERAL.—Each nationally recognized 
statistical rating organization shall designate an in-
dividual to serve as a compliance officer. 
‘‘(2) DUTIES.—The compliance officer shall— 
‘‘(A) report directly to the board of the na-
tionally recognized statistical rating organiza-
tion; 
‘‘(B) review compliance with policies and 
procedures to manage conflicts of interest and 
assess the risk that the compliance (or lack of 
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such compliance) may compromise the integrity 
of the credit rating process; 
‘‘(C) review compliance with the internal 
control system with respect to the procedures and 
methodologies for determining credit ratings, in-
cluding qualitative methodologies and quan-
titative inputs used in the rating process, and 
assess the risk that such internal control system 
is reasonably designed to ensure the integrity 
and quality of the credit rating process; 
‘‘(D) in consultation with the board of the 
nationally recognized statistical rating organiza-
tion, resolve any conflicts of interest that may 
arise; 
‘‘(E) be responsible for administering the 
policies and procedures required to be established 
pursuant to this section; 
‘‘(F) ensure compliance with securities laws 
and the rules and regulations issued thereunder, 
including rules prescribed by the Commission 
pursuant to this section; and 
‘‘(G) establish procedures— 
‘‘(i) for the receipt, retention, and 
treatment of complaints regarding credit 
ratings, models, methodologies, and compli-
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