On August 27, the Securities and Exchange Commission adopted new rules for credit rating agencies to enhance governance, protect against conflicts of interest, and increase transparency to improve the quality of credit ratings and increase credit rating agency accountability. Industry observers hope that the new rules will address problems that have contributed to the failure of some corporate credit unions. In some ways, the rules aim to prevent claims that form the basis of the National Credit Union Administration’s lawsuit against Standard & Poor’s, which alleged that the S&P purposely misled corporations when rating mortgage-backed securities and collateralized debt obligations for credit risk.

The new requirements for nationally recognized statistical rating organizations address internal controls, conflicts of interest, disclosure of credit rating performance statistics, procedures to protect the integrity and transparency of rating methodologies, disclosures to promote the transparency of credit ratings, and standards for training, experience, and competence of credit analysts. They also provide for an annual certification by the CEO as to the effectiveness of internal controls and additional certifications to accompany credit ratings attesting that the rating was not influenced by other business activities.

Furthermore, the SEC adopted requirements for issuers, underwriters, and third-party due diligence services to promote the transparency of the findings and conclusions of third-party due diligence regarding asset-backed securities.

“This expansive package of reforms will strengthen the overall quality of credit ratings, enhance the transparency of credit rating agencies and increase their accountability,” SEC Chair Mary Jo White said in a release. “Today’s reforms will help protect investors and markets against a repeat of the conduct and practices that were central to the financial crisis.”

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Photo of H. Scott Kelly H. Scott Kelly

Scott is a consumer data and privacy specialist. He regularly defends against data breach lawsuits and class action claims asserted under federal and state consumer-protection statutes (FCRA, FDCPA, TCPA, UCC, UDAAP, RICO). Scott represents companies on an array of data privacy issues, including

Scott is a consumer data and privacy specialist. He regularly defends against data breach lawsuits and class action claims asserted under federal and state consumer-protection statutes (FCRA, FDCPA, TCPA, UCC, UDAAP, RICO). Scott represents companies on an array of data privacy issues, including background screening, consumer reporting, data breaches, ransomware attacks, and related regulatory investigations by the Consumer Financial Protection Bureau (CFPB), Federal Trade Commission (FTC), and state attorneys general.

Photo of Michael E. Lacy Michael E. Lacy

Michael heads the firm’s Consumer Financial Services practice, and handles class actions and high-stakes consumer litigation on a nationwide basis. He represents banks, mortgage servicers, debt buyers and collectors, and lenders against claims under consumer protection statutes, including the FCRA, TCPA, RESPA, RICO,

Michael heads the firm’s Consumer Financial Services practice, and handles class actions and high-stakes consumer litigation on a nationwide basis. He represents banks, mortgage servicers, debt buyers and collectors, and lenders against claims under consumer protection statutes, including the FCRA, TCPA, RESPA, RICO, and state UDAP laws. He has significant experience litigating and trying corporate governance disputes, including shareholder derivative claims, corporate dissolution cases, and corporate divorce matters. Michael also represents public utility companies in litigation and regulatory matters, including condemnation and land use cases.