[StBernard] Committee Approves Bipartisan Credit Rating Agencies Reform Legislation

[Westley Annis]

Financial Services Committee Approves Bipartisan Credit Rating Agencies
Reform Bill

Washington, DC - Today, the House Financial Services Committee passed H.R.
3890, the Accountability and Transparency in Rating Agencies Act, introduced
by Congressman Paul E. Kanjorski (D-PA), Chairman of the House Financial
Services Subcommittee on Capital Markets, Insurance, and Government
Sponsored Enterprises.  The Committee passed H.R. 3890, with bipartisan
support, by a vote of 49-14.  

"The Accountability and Transparency in Rating Agencies Act aims to curb the
inappropriate and irresponsible actions of credit rating agencies which
greatly contributed to our current economic problems," said Chairman
Kanjorski.  "This legislation builds on the Administration's proposal and
takes strong steps to reduce conflicts of interest, stem market reliance on
credit rating agencies, and impose a liability standard on the agencies.  As
gatekeepers to our markets, credit rating agencies must be held to higher
standards.  We need to incentivize them to do their jobs correctly and
effectively, and there must be repercussions if they fall short.  This bill
will take such steps.  I look forward to moving it through the legislative
process."

A summary of H.R. 3890 follows:

*           Stronger than the Administration's Plan on Rating Agencies. The
Accountability and Transparency in Rating Agencies Act expands on the
initial credit rating agency legislation proposed by the Administration in
that it:

*           Creates Accountability by Imposing Liability.  The bill enhances
the accountability of Nationally Recognized Statistical Rating Organizations
(NRSROs) by clarifying the ability of individuals to sue NRSROs.  The bill
also clarifies that the limitation on the Securities and Exchange Commission
(SEC) or any State not to regulate the substance of credit ratings or
ratings methodologies does not afford a defense against civil anti-fraud
actions.

*           Duty to Supervise.  The bill adds a new duty to supervise an
NRSRO's employees and authorizes the SEC to sanction supervisors for failing
to do so.

*           Independent Board of Directors.  The bill requires each NRSRO to
have a board with at least one-third independent directors and these
directors shall oversee policies and procedures aimed at preventing
conflicts of interest and improving internal controls, among other things. 

*           Mitigate conflicts of interests. The legislation also contains
numerous new requirements designed to mitigate the conflicts of interest
that arise out of the issuer-pays model for compensating NRSROs.
Additionally, the bill significantly enhances the responsibilities and
accountability of NRSRO compliance officers to address conflicts of interest
issues.

*           Greater Public Disclosure. As a result of the bill, investors
will gain access to more information about the internal operations and
procedures of NRSROs. In addition, the public will now learn more about how
NRSROs get paid.

*           Revolving-Door Protections. When certain NRSRO employees go to
work for an issuer, the bill requires the NRSRO to conduct a 1-year
look-back into the ratings in which the employee was involved to make sure
that its procedures were followed and proper ratings were issued. The bill
also requires NRSROs to report to the SEC, and for the SEC to make such
reports public, the names of former NRSRO employees who go to work for
issuers.

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