SEC Publishes Annual Staff Report on Nationally Recognized Statistical Rating Organizations

The U.S. Securities and Exchange Commission (SEC) has published its latest Annual Staff Report on Nationally Recognized Statistical Rating Organizations. The report summarizes the key findings (both deficiencies and risks) from SEC staff examinations of nationally recognized statistical rating organizations (NRSROs) in the previous year and provides some general statistics as to the number of registered organizations, their size, or their key areas of focus. The below noted list indicates the major risks and shortcomings identified during such examinations. For further information, please refer to the original document.
#### Major risks and shortcomings identified at nationally recognized statistical rating organizations during the examination period
– NRSROs are prone to conflicts of interest between themselves and their clients.
– NRSROs are also vulnerable for the use of inside information to purchase or sell securities. Many were lacking adequate policies in this context.
– Potentially due to increased market stress due to the onset of the COVID-19 pandemic, some NRSROs revealed weaknesses in their surveillance practices;
– One large NRSRO was lacking policies and procedures as regards the methodologies used to determine credit ratings;
– Some medium sized NRSROs did not assess an issuer’s default probability when determining specific credit ratings;
– One NRSRO did not document „the steps taken in the determination of a credit rating“ which is necessary to perform an „after-the-fact“ credit rating review.
– Some NRSROs were not disclosing essential information or were using inappropriate formats or forms to do so.