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Office of Credit Ratings

Staff Report

NATIONALLY RECOGNIZED

STATISTICAL RATING ORGANIZATIONS

FEBRUARY | 2023

As Required by Section 6 of the Credit Rating Agency Reform Act of 2006

and Section 15E(p)(3)(C) of the Securities Exchange Act of 1934

This is a report of the Staff of the U.S. Securities and Exchange Commission. Staff reports, Investor Bulletins, and

other staff documents represent the views of Commission staff and are not a rule, regulation, or statement of the

Commission. The Commission has neither approved nor disapproved the content of these documents and, like all

staff statements, they have no legal force or effect, do not alter or amend applicable law, and create no new or

additional obligations for any person. The Commission has expressed no view regarding the analysis, findings, or

conclusions contained herein.

O F F I C E O F C R E D I T R AT I N G S

CONTENTS

CHARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii

INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

II.

STATUS OF REGISTRANTS AND APPLICANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

III. EXAMINATIONS AND MONITORING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

A. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Risk Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Monitoring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

2022 Section 15E(p)(3) Examinations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

1. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

2. Terms Used in This Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

3. S

ummary of Essential Findings and Responses to Material Regulatory Deficiencies. . . . 11

4. Responses to Recommendations from the 2021 Section 15E Examinations. . . . . . . . . . 17

IV. STATE OF COMPETITION, TRANSPARENCY, AND CONFLICTS OF INTEREST . . . . . . . . . . . 19

A. Competition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

1. Select NRSRO Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

2. Market Share Observations in the Asset-Backed Securities Rating Category. . . . . . . . 29

3. Barriers to Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Conflicts of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

ACTIVITIES RELATING TO NRSROs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

A. Commission Orders and Releases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Court Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Staff Publication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

VI. APPENDIX: SUMMARY OF STATUTORY FRAMEWORK AND RULES. . . . . . . . . . . . . . . . 43

S TA F F R E P O R T

CHARTS

Chart 1.

Table of NRSROs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Chart 2. Number of Outstanding Credit Ratings as of December 31, 2021 by

Rating Category. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Chart 3. Percentage by Rating Category of Each NRSRO’s Outstanding Credit

Ratings of the Total Outstanding Credit Ratings of all NRSROs as of

December 31, 2021. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Chart 4. Breakdown of Ratings Reported Outstanding by Rating Category as of

December 31, 2021. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Chart 5. Breakdown of Ratings Reported Outstanding by NRSRO

as of December 31, 2021. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

Chart 6. Breakdown of Non-Government Securities Ratings Reported

Outstanding by NRSRO as of December 31, 2021 . . . . . . . . . . . . . . . . . . . .23

Chart 7. Breakdown of Government Securities Ratings Reported

Outstanding on December 31, 2021. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Chart 8. Total Non-Government Ratings Issued by All NRSROs as of

December 31, 2021. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Chart 9. Total Non-Government Ratings Issued by Medium and Small

NRSROs as of December 31, 2021. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Chart 10. Total ABS Ratings Issued by All NRSROs as of December 31, 2021. . . . . . . . . .26

Chart 11.

NRSRO Credit Analysts and Credit Analyst Supervisors . . . . . . . . . . . . . . . .26

Chart 12. NRSRO Fiscal Year Revenue as a Percentage of Aggregate

Reported Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Chart 13. Rating Agency Market Shares for Total Non-Agency U.S. CMBS

Issued in 2020, 2021, and First Half of 2022 . . . . . . . . . . . . . . . . . . . . . . . 30

Chart 14. Rating Agency Market Shares for U.S. Conduit CMBS Issued in 2020,

2021, and First Half of 2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Chart 15. Rating Agency Market Shares for U.S. Single-Borrower CMBS

Issued in 2020, 2021, and First Half of 2022 . . . . . . . . . . . . . . . . . . . . . . . 31

Chart 16. Rating Agency Market Shares for Agency CMBS Issued in 2020, 2021, and

First Half of 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Chart 17. Rating Agency Market Shares for U.S. ABS Issued in 2020, 2021, and

First Half of 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

Chart 18. Rating Agency Market Shares for U.S. MBS Issued in 2020, 2021, and

First Half of 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33

Chart 19. Rating Agency Market Shares for U.S. CLOs Issued in 2020, 2021, and

First Half of 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

O F F I C E O F C R E D I T R AT I N G S

I. INTRODUCTION

he Staff of the U.S. Securities and Exchange

Commission (Commission) provides this

Report regarding nationally recognized statistical rating organizations (NRSROs) pursuant

to Section 6 of the Credit Rating Agency Reform

Act of 2006 (Rating Agency Act)1 and Section

15E(p)(3)(C) of the Securities Exchange Act of

1934 (Exchange Act).2

Section 6 of the Rating Agency Act requires the

Commission to submit an annual report to the

Committee on Banking, Housing, and Urban

Affairs of the U.S. Senate and the Committee on

Financial Services of the U.S. House of Representatives that, with respect to the year to which the

report relates:

■

Identifies applicants for registration as NRSROs

under Section 15E;

Specifies the number of, and actions taken on,

such applications; and

Specifies the views of the Commission on the

state of competition, transparency, and conflicts

of interest among NRSROs.

Section 15E(p)(3)(C) requires the Commission

to make available to the public an annual report

summarizing:

■

Essential findings of all Section 15E

examinations, as deemed appropriate by the

Commission;

NRSROs’ responses to any material regulatory

deficiencies identified by the Commission; and

Whether the NRSROs have appropriately

addressed the recommendations of the

Commission contained in previous annual

reports.

This Report addresses the items specified in

Section 6 of the Rating Agency Act and Section

15E(p)(3). This is a report of the Staff and, as such,

reflects solely the Staff’s views.

Information regarding the topics covered in this

Report with respect to prior periods can be found

on the Office of Credit Ratings (OCR) page of the

Commission’s website.3

Pub. L. No. 109-291, 120 Stat. 1327 (Sept. 29, 2006).

Unless otherwise noted, all section and rule references in this report are to the Exchange Act and rules under the Exchange

Act.

See “Reports and Studies” section of the OCR webpage, available at https://www.sec.gov/ocr/ocr-reports-and-studies.html.

Prior to 2021, OCR published two separate annual reports: an Annual Report to Congress pursuant to Section 6 of the

Rating Agency Act and a Summary Examination Report pursuant to Section 15E(p)(3)(C) of the Exchange Act. The 2021

Staff Report on NRSROs was the first to present in a single report the requirements under both Section 6 of the Rating

Agency Act and Section 15E(p)(3) of the Exchange Act.

S TA F F R E P O R T

O F F I C E O F C R E D I T R AT I N G S

II. STATUS OF REGISTRANTS

AND APPLICANTS

n 2007, the Commission began granting registrations to credit rating agencies that applied to be

registered as an NRSRO. Section 3(a)(62) defines

a “nationally recognized statistical rating organization” as a credit rating agency that is registered

under Section 15E and issues credit ratings certified

by qualified institutional buyers, in accordance with

Section 15E(a)(1)(B)(ix), with respect to:

(i) Financial institutions, brokers, or dealers;

(ii) Insurance companies;

(iii) Corporate issuers;

(iv) Issuers of asset-backed securities;4

(v) Issuers of government securities, municipal

securities, or securities issued by a foreign

government; or

(vi) A combination of one or more categories of

obligors described in any of clauses (i) through

(v) above.5

As of December 31, 2022, there were ten credit

rating agencies registered as NRSROs.6 Chart

1 below lists each NRSRO registered with the

Commission as of such date, the categories of

credit ratings described in clauses (i) through (v) of

Section 3(a)(62)(A) in which each NRSRO is registered, and the location of each NRSRO’s principal

office.7

“Asset-backed securities” has the meaning set forth in 17 CFR 229.1101(c), as in effect on September 29, 2006 (the date of

enactment of the Rating Agency Act).

Section 3(a)(62)(A).

Section 15E(a) sets out registration procedures for a credit rating agency to voluntarily apply to be registered with the

Commission as an NRSRO.

See each NRSRO’s current Form NRSRO for any updates to this information. Each NRSRO must file with the

Commission on EDGAR a Form NRSRO for annual certification and registration updates pursuant to paragraphs (e)

and (f) of Rule 17g-1, and each NRSRO must make its current Form NRSRO publicly and freely available on its website

pursuant to paragraph (i) of Rule 17g-1. Form NRSRO filings are available on the EDGAR system at https://www.sec.

gov/edgar/searchedgar/companysearch.html. Links to each NRSRO’s website can be found under the “Current NRSROs”

section of the OCR webpage, available at https://www.sec.gov/ocr/ocr-current-nrsros.html.

S TA F F R E P O R T

Chart 1. Table of NRSROs

Categories of Credit

Ratings

Principal Office

A.M. Best Rating Services, Inc. (AMB)

(ii), (iii), and (iv)

U.S.

DBRS, Inc. (DBRS)

(i) through (v)

U.S.

(ii)

U.S.

Egan-Jones Ratings Company (EJR)

(i) through (iii)

U.S.

Fitch Ratings, Inc. (Fitch)

(i) through (v)

U.S.

HR Ratings de México, S.A. de C.V. (HR)

(i), (iii), and (v)

Mexico

Japan Credit Rating Agency, Ltd. (JCR)

(i), (ii), (iii), and (v)

Japan

Kroll Bond Rating Agency, LLC (KBRA)

(i) through (v)

U.S.

NRSRO

Demotech, Inc. (Demotech)

Moody’s Investors Service, Inc. (Moody’s)

(i) through (v)

U.S.

S&P Global Ratings (S&P)

(i) through (v)

U.S.

Solely for purposes of this Report: Fitch, Moody’s,

and S&P are categorized as “large NRSROs;”

AMB, DBRS, and KBRA are categorized as

“medium NRSROs;” and EJR, HR, and JCR are

categorized as “small NRSROs.” These categorizations are based on revenue.8

In accordance with the Exchange Act, the

Commission grants registration as an NRSRO

if it finds the requirements of Section 15E are

satisfied and so long as it does not find: (1) that

the applicant does not have adequate financial and

managerial resources to produce credit ratings with

integrity, to materially comply with its procedures

and methodologies for determining credit ratings

Applications for initial registration by a credit

rating agency and for registration by a current

NRSRO in additional rating categories are filed

on Form NRSRO.10 A credit rating agency may

choose not to apply for registration as an NRSRO,

in which case it may issue credit ratings as a credit

Collectively, the three large NRSROs account for approximately 93.2% of the aggregate revenue reported by all

NRSROs for the 2021 fiscal year in accordance with Rule 17g-3(a)(3); the three medium NRSROs collectively account

for approximately 5.6% of such aggregate revenue; and the three small NRSROs collectively account for approximately

1.1% of such aggregate revenue. See infra Section IV.A.1.c, Chart 12. Based on information provided in its application

for registration, Demotech would be characterized as a small NRSRO for purposes of this Report. However, because

Demotech was not registered as an NRSRO for the entirety of calendar year 2022, it is generally not discussed in the

portions of this Report that use this term. References to small NRSROs in this Report do not include Demotech.

Section 15E(a)(2)(C).

See Section 15E(a) and Rule 17g-1; see also Form NRSRO, available at https://www.sec.gov/about/forms/formnrsro.pdf.

In addition, Section 15E(b) requires NRSROs to promptly amend Form NRSRO if any information or document provided

therein becomes materially inaccurate.

disclosed on Form NRSRO, and to materially

comply with provisions of Section 15E related

to the prevention of the misuse of non-public

information, management of conflicts of interest,

prohibited conduct, and designation of a

compliance officer; or (2) that if the applicant were

to be registered, its registration would be subject to

suspension or revocation.9

O F F I C E O F C R E D I T R AT I N G S

rating agency, but it may not issue credit ratings as

an NRSRO.11 In addition, a credit rating agency

may choose to apply for registration as an NRSRO

in one or more rating categories.12 As noted in

Chart 1 above, certain NRSROs are registered in all

of the rating categories, and certain NRSROs are

registered in fewer than all of the rating categories.

In calendar year 2022, one application for initial

registration as an NRSRO in the insurance

companies ratings class was filed with the

Commission by Demotech. The Commission

granted Demotech’s registration as an NRSRO in

such ratings class on July 11, 2022.13 No applications for registration by a current NRSRO in

additional rating categories were filed with the

Commission in calendar year 2022.

The SEC oversees and, as discussed below,

examines NRSROs. The Commission is prohibited

by statute, however, from regulating the substance

of credit ratings or the procedures and methodologies the NRSROs use to determine credit

ratings.14 Methodologies include, among other

things, the quantitative and qualitative models used

to determine credit ratings.

Section 3(a)(60) defines the term “credit rating,” Section 3(a)(61) defines the term “credit rating agency,” and Section

3(a)(62) defines the term “nationally recognized statistical rating organization.” For additional information about credit

ratings, see Updated Investor Bulletin: The ABCs of Credit Ratings (Oct. 12, 2017), available at https://www.sec.gov/oiea/

investor-alerts-and-bulletins/ib_creditratings.

See Section 3(a)(62)(A)(i) – (vi).

See Order Granting Registration of Demotech, Inc. as a Nationally Recognized Statistical Rating Organization, SEC Rel.

No. 34-95243 (July 11, 2022), available at: https://www.sec.gov/rules/other/2022/34-95243.pdf.

See Section 15E(c)(2).

S TA F F R E P O R T

III. EXAMINATIONS AND MONITORING

A. OVERVIEW

n accordance with Section 15E(p)(3), the Staff

conducts examinations of each NRSRO at least

annually.15 Generally, the purpose of these annual

examinations is to promote compliance with applicable federal securities laws and rules by identifying

potential instances of non-compliance by NRSROs

with their statutory and regulatory obligations and

recommending remedial action. Information obtained

during an examination can also inform Staff of

noteworthy industry developments.

To facilitate and promote compliance by

NRSROs with their statutory and regulatory

obligations, the Staff sends each NRSRO an

examination summary letter that discusses its

findings related to that NRSRO and recommends

remedial measures. When appropriate, Staff may

refer findings to the Commission’s Division of

Enforcement for investigation.

Section 15E(p)(3)(B) provides that each NRSRO

examination (Section 15E examinations) shall

include a review conducted of the following eight

topic areas (Section 15E Review Areas):

■

Whether the NRSRO conducts business in

accordance with its policies, procedures, and

rating methodologies;

Management of conflicts of interest by the

NRSRO;

■

Implementation of ethics policies by the

NRSRO;

Internal supervisory controls of the NRSRO;

Governance of the NRSRO;

Activities of the Designated Compliance Officer

(DCO) of the NRSRO;

Processing of complaints by the NRSRO; and

Policies of the NRSRO governing the

post-employment activities of its former staff.

This Section III discusses the annual examinations

pursuant to Section 15E(p)(3) that commenced in

late 2021 and concluded in late September 2022

(2022 Section 15E examinations).

B. RISK ASSESSMENT

The 2022 Section 15E examinations encompassed all of the statutorily required Section 15E

Review Areas. The Staff also determined areas of

emphasis and issues of focus for each examination

based upon an NRSRO-specific risk assessment

performed by the Staff, while also considering how

to limit the amount of personal data collected in

the examination process. The NRSRO-specific

risk assessments considered a number of factors,

including, but not limited to:

■

NRSROs’ rating activities and operations;

Staff’s findings, recommendations, and other

observations from prior examinations;

Pursuant to Section 17, the Staff can conduct examinations of NRSROs that supplement the Section 15E examinations.

S TA F F R E P O R T

■

Impact of a potential or actual internal control

or compliance failure by the NRSRO;

Recent industry developments affecting

NRSROs and the asset classes in which the

NRSRO is registered;

NRSROs’ filings with the Commission and

public disclosures;

NRSROs’ self-identified weaknesses;

Relevant Tips, Complaints, and Referrals

(TCRs) received by the Commission; and

Risks identified in a risk assessment process.

Through its risk assessment process in connection

with the 2022 Section 15E examinations, which

focuses primarily on new and emerging issues,

OCR staff identified a number of potential risks for

consideration in the NRSRO-specific risk assessments and incorporation into the examinations, as

appropriate. The risks identified include:

■

Surveillance Practices in Times of Stress:

Rating surveillance processes came under stress

during COVID-19 due to rapidly changing

information and declining performance in some

sectors, which may have required additional

surveillance reviews. The Staff identified as

potential risks: the possibility that increased

analyst workloads could result in failures to

adhere to applicable surveillance policies and

procedures; and the possibility that NRSROs

may have adjusted assumptions or streamlined

surveillance processes without sufficient

controls to ensure appropriate documentation

and disclosure.

Impact of Pandemic on Commercial Real

Estate: After being adversely affected by

COVID-19, the single borrower CMBS sector

experienced an uneven recovery during the

first half of 2021 as compared to the first half

■

of 2020, with properties such as lodging and

retail lagging. The Staff identified potential

risks relating to commercial real estate ratings

with significant exposure to sectors negatively

impacted by COVID-19, and potential

non-adherence to methodologies and rating

processes with respect to: (1) qualitative

adjustments made to model implied ratings,

model implied subordination levels, and inputs

to models used in the ratings process; (2)

property valuations; and, (3) default frequency

and severity assumptions or projections.

Changing Methods of Communication/

Technology: The Staff identified as a potential

risk, given the increased use of text messaging

applications as a means of communication,

an increased likelihood that business

communications are conducted through

unapproved means and/or that appropriate

records are not retained.

Securities Ownership: In light of specific findings

and recommendations in the 2021 Section 15E

examinations, the Staff identified as a potential

risk for consideration by all examination teams

that NRSROs may have weaknesses in their

policies and procedures to manage conflicts of

interest or prevent inappropriate use of material

non-public information with respect to securities

ownership by employees.

ESG Factors and Products: NRSROs have

developed ESG methodologies applicable to

the determination of credit ratings. In addition,

NRSROs and their affiliates continue to develop

and offer an increasing number of ESG-related

products and services that are not credit ratings

and therefore are not directly regulated by the

Commission.16 Potential risks identified by the

Staff include the possibility that the marketing

and development of stand-alone ESG products

Examples of such ESG products and services include: evaluations of the environmental benefits of a project financed with

the proceeds of a “green” bond issuance; ESG scores based on the expected impact of ESG factors on a company’s growth,

profitability, capital efficiency, and risk exposure; and assessments of a company’s risk from climate-related scenarios.

O F F I C E O F C R E D I T R AT I N G S

■

may result in conflicts of interest that could

affect credit ratings.

Ratings on Firms Based in China: The Staff

identified a number of recent developments in

China that could potentially have significant

economic consequences. Such developments

include: a heightened level of concern regarding

the creditworthiness of large Chinese real estate

development firms; regional power reductions

and rationing resulting from fuel shortages, high

demand, and regulatory imperatives, leading to

production slowdowns; and substantial losses

reported at a majority state-owned financial

company focused on debt management. The

Staff identified concerns that these developments

potentially could result in adverse effects on the

ratings of firms based in China.

C. MONITORING

To help inform its risk assessment process

and examination program, the Staff in 2022

monitored credit rating activity, industry trends

and developments, NRSRO operational developments and plans, and relevant capital market,

economic, and financial news and events. The

Staff’s monitoring activities consisted primarily of

communications with NRSROs and users of credit

ratings and reviewing sources such as NRSRO

publications, news reports, trade publications,

academic papers, industry conference information,

and government reports.

For example, the Staff’s discussions covered

the scope and nature of rating actions that the

NRSROs attributed to the Russia-Ukraine conflict.

This included numerous rating actions on entities

in Russia, Ukraine, and other countries affected

by the conflict due to rising prices of commodities

and energy, disruption of business activity within

Russia and Ukraine, and increased cyber and other

security risks. It also included the withdrawal of

ratings subject to sanctions.17 In addition, NRSROs

reported suspending operations in Russia and

transferring analytical responsibilities, rating

information, and network access to offices outside

of the country.

Another topic of the Staff’s monitoring efforts

was consideration of the effect of rising interest

rates and inflation. These developments led some

NRSROs to lower their global and U.S. economic

growth forecasts and consider the impact on their

credit ratings.

The Staff’s monitoring efforts also covered NRSRO

rating activity related to decentralized finance

(DeFi), such as distributed ledger technologies,

crypto assets, and smart contracts. This rating

activity, although limited, included assessments of

entities directly engaged in DeFi or crypto assets,

evaluation of crypto asset holdings by rated entities,

and ratings of structured finance transactions

utilizing blockchain.

In 2022, the Staff also continued to participate in

meetings that involved rating agency regulators

globally, including those of the supervisory colleges

that were formed for the largest internationally

active credit rating agencies. The supervisory

colleges were formed to enhance communication

among credit rating agency regulators globally with

respect to examinations of the relevant credit rating

On March 15, 2022, the European Union (EU) announced a ban, effective April 15, 2022, on the provision of credit

rating services by EU credit rating agencies, or the provision of access to any subscription services in relation to credit

rating activities by EU credit rating agencies, to any Russian national or natural person residing in Russia or any legal

person, entity or body established in Russia. See Ukraine: EU agrees fourth package of restrictive measures against Russia,

European Commission, March 15, 2022, available at https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1761.

S TA F F R E P O R T

agencies.18 Each college engaged in periodic discussions during 2022 regarding supervisory activities

related to the credit rating agencies. The Staff also

conducted additional discussions with foreign

regulators, as appropriate.

D. 2022 SECTION 15E(p)(3)

EXAMINATIONS

1. Overview

The 2022 Section 15E examinations generally

focused on the NRSROs’ activities for the period

covering January 1, 2021 through December 31,

2021 (the Review Period).19 The examinations also

reviewed certain activities or credit rating actions

from outside the Review Period, as appropriate.20

The 2022 Section 15E examinations included

a review of the Section 15E Review Areas and

examination of each NRSRO’s compliance with

Section 15E and Rules 17g-1 through 17g-10.

For example, the Staff reviewed a sample of

rating actions of each NRSRO in certain asset

classes for which it is registered and for certain

issuers and obligors to determine whether the

NRSRO operated in accordance with its policies,

procedures, and rating methodologies. The Staff

also reviewed rating files and documentation to

evaluate whether each NRSRO adhered to recordkeeping requirements.21

2. Terms Used in This Report

This Report contains a summary of, respectively,

the essential findings of the Staff’s annual examinations, the NRSROs’ responses to any material

regulatory deficiencies, and whether the NRSROs

have appropriately addressed the recommendations

contained in previous reports.22

For purposes of this Report, the Staff considers an

“essential finding” to be any instance identified

by the Staff of apparent non-compliance by an

NRSRO with the federal securities laws or related

Commission rules applicable to NRSROs, except

those instances attributable to a non-recurring

and non-significant clerical or ministerial error or

omission.

For purposes of this Report, the Staff considers

“material regulatory deficiencies” to be essential

findings that involve:

■

Conduct or a deficiency that could undermine

the quality of a credit rating or impair the

objectivity of an NRSRO’s credit rating process;

Conduct that may be inconsistent with the

anti-fraud provisions of the federal securities

laws.

See IOSCO, Supervisory Colleges for Credit Rating Agencies, Final Report (July 2013), available at https://www.iosco.org/

library/pubdocs/pdf/IOSCOPD416.pdf. The SEC serves as chair of the college for S&P and OCR Staff represents the SEC

in this regard. The European Securities and Markets Authority serves as chair of the college for Fitch and the Financial

Conduct Authority serves as chair of the college for Moody’s.

Demotech was not registered as an NRSRO during the Review Period and was therefore not the subject of a 2022 Section

15E examination.

For example, the Staff may review information relating to TCRs in a current examination, even if the referenced activities

occurred outside of the Review Period.

To select rating actions and rating files to review, the Staff used a risk-based sampling process that is consistent with its

overall risk assessment approach described in this Report. The Staff also considered factors including, but not limited

to, the size of the rated asset class in the financial markets and the NRSRO’s business, the NRSRO’s activity in the

rated asset class, the likelihood of impact on investors if a rating was not determined in accordance with the NRSRO’s

methodologies and procedures, news reports and developments concerning the NRSROs or particular asset classes, TCRs,

and information the Staff learned during examinations.

See Section 15E(p)(3)(C)(i)-(iii). In this Report, essential findings are organized by NRSRO within the applicable large,

medium, and small groups.

O F F I C E O F C R E D I T R AT I N G S

The Staff’s determination that an NRSRO appropriately addressed a recommendation does not

constitute its endorsement of that NRSRO or its

policies, procedures, internal controls, or operations. In a future examination, the Staff may

reevaluate the NRSRO’s response to recommendations that it previously deemed to be appropriately

addressed by, for example, assessing whether the

NRSRO fully implemented remedial measures

and whether those remedial measures appear

to be effective. The Staff may also review and

make recommendations concerning the NRSRO’s

policies, procedures, internal controls, or operations related to the general subject matter of a

recommendation that it previously deemed to be

appropriately addressed.

The Staff’s assessment of whether an NRSRO

has appropriately addressed a recommendation

depends on the specific facts and circumstances,

including, but not limited to, the promptness of

the NRSRO’s response, the severity of the conduct

at issue, and whether the remedial action undertaken by the NRSRO is expected to fully resolve

the Staff’s concerns. In addition, the determination

of whether an NRSRO appropriately addressed

a recommendation reflects solely the Staff’s view

and does not necessarily reflect the views of the

Commission.

3. Summary of Essential Findings and

Responses to Material Regulatory

Deficiencies

For purposes of the Report, the Staff grouped the

findings by each large NRSRO, medium NRSRO,

and small NRSRO in a random ordering.

a. Large NRSRO #1

The NRSRO did not appear to comply with the

Section 15E(g)(1) requirement to enforce policies

and procedures reasonably designed to prevent

the misuse of material, non-public information.

Contrary to the NRSRO’s policies and procedures, in several instances analysts used a personal

messaging application that was not approved by

the NRSRO to conduct analytical discussions

pertaining to the determination of a credit rating.

The Staff recommended that the NRSRO enforce

its policies and procedures regarding approved

communication methods and, to facilitate

compliance, provide appropriate notice and

training on those policies to NRSRO personnel

and institute appropriate discipline with regard to

personnel who do not follow such policies.

b. Large NRSRO #2

The NRSRO did not promptly provide complete

records subject to a retention requirement and

therefore did not appear to comply with Rule

17g-2(f). The NRSRO did not provide two records

requested by the Staff in a timely manner, because

the NRSRO did not conduct an adequate review

for completeness prior to providing its response.

The Staff recommended that the NRSRO promptly

provide complete copies of all relevant documents

in its productions to the Staff.

c. Large NRSRO #3

The NRSRO did not appear to establish, maintain,

enforce, and document an effective internal control

structure governing adherence to policies, procedures, and methodologies for determining credit

ratings, as required by Section 15E(c)(3)(A). The

NRSRO did not take a step required in its procedures designed to alert personnel responsible for

reviewing and validating models that changes had

been made to a model. As a result, such personnel

were not aware of a particular change and did not

conduct a review of that change as required by the

NRSRO’s procedures, and the NRSRO did not

detect for approximately two years a model error

that potentially affected several ratings. The Staff

recommended that the NRSRO establish, maintain,

enforce, and document an effective internal control

S TA F F R E P O R T

structure governing adherence to its policies and

procedures related to model changes.

d. Medium NRSRO #1

(1) The NRSRO did not appear to establish,

maintain, enforce, and document policies

and procedures reasonably designed to assess

the probability that an issuer of a security

will default, fail to make timely payment, or

otherwise not make payments to investors in

accordance with the terms of the security, as

required by Rule 17g-8(b)(1). In determining

a credit rating, the NRSRO excluded from

the scope of the credit rating certain payment

obligations under the terms of the security.

Although disclosed in the accompanying rating

letter, the exclusion resulted in the NRSRO not

assessing the likelihood of payment in accordance with the terms of the security and, given

the Staff’s view that the excluded obligations

were subject to credit risk, was inconsistent with

the NRSRO’s general ratings policy and ratings

scale. The Staff recommended that the NRSRO

establish, maintain, enforce, and document

policies and procedures reasonably designed to

assess the probability that an issuer of a security

will default, fail to make timely payments, or

otherwise not make payments to investors in

accordance with the terms of the security.

The Staff identified such essential finding as a

material regulatory deficiency.

In its response, the NRSRO stated that, based

on its analysis of the underlying transaction

documents and certain other considerations, the

payment obligations that were excluded from

the scope of the rating were not subject to credit

risk. As a result, the NRSRO concluded that

the approach to the rating was consistent with

its policies and procedures, including its rating

scale. The NRSRO indicated a belief that it

O F F I C E O F C R E D I T R AT I N G S

would be inconsistent with the federal securities

laws to require a credit rating agency to issue

credit ratings that reflect something other than

credit risk.

The NRSRO stated that, in response to the

Staff’s recommendation, it is developing an

action plan to make enhancements to relevant

aspects of its compliance program. The NRSRO

indicated that it will conduct a comprehensive

review of its relevant procedures and practices

to identify potential areas of enhancement or

clarification related to compliance with Rule

17g-8(b)(1). The NRSRO stated that it would

enhance controls, procedures, or guidance to

expressly reflect its current practices designed to

identify relevant obligations with credit risk and

confirm that all such obligations are addressed

by a credit rating. It identified several specific

processes and practices that may be enhanced.

The NRSRO also indicated that it would

expand training opportunities for analytical and

business development personnel and evaluate

whether further public disclosure would be

appropriate and helpful.

(2) The NRSRO did not appear to comply

with the Section 15E(g)(1) requirement to

enforce policies and procedures reasonably

designed to prevent the misuse of material,

non-public information. The NRSRO did

not give a required training covering, among

other things, the acceptable use of electronic

communications within the timeframe required

under its policies. Certain NRSRO personnel

that did not receive timely training sent

emails containing confidential information to

personal email accounts in contravention of

the NRSRO’s relevant communications policy,

and the NRSRO did not identify this breach of

its policy in a timely manner. The Staff recommended that the NRSRO enforce applicable

training policies and procedures in the use of

non-approved email accounts to prevent the

misuse of material non-public information and

to consider whether its policies and procedures

to prevent the misuse of material non-public

information are reasonably designed to detect

unauthorized dissemination of material

non-public information.

(3) The NRSRO’s policies and procedures

did not appear to be reasonably designed to

address a conflict of interest that could arise

from its business, as required by Section 15E(h)

(1). Specifically, the NRSRO did not appear to

have reasonably designed policies and procedures to prevent it from issuing or maintaining

credit ratings solicited by a person that provides

it with net revenue equaling or exceeding 10%

of its net revenue in a fiscal year, a prohibited

conflict of interest set forth in Rule 17g-5(c)(1).

The NRSRO’s processes related to monitoring

such a conflict of interest are retrospective

in nature, and therefore would only serve

to detect a violation after it occurred rather

than prevent its occurrence. The Staff recommended that the NRSRO establish, maintain,

and enforce written policies and procedures

reasonably designed to prevent it from issuing

or maintaining a credit rating solicited by a

person who provided the NRSRO with net

revenue equaling or exceeding 10% of its total

net revenue in the prior fiscal year.

(4) The NRSRO published certain information disclosure forms that did not appear to

be in a format that is easy to use and helpful

for users of credit ratings to understand the

information contained therein, as required by

Rule 17g-7(a)(1)(i)(B). The Staff recommended

that the NRSRO publish information disclosure

forms in a format that is easy to use and helpful

for users of credit ratings to understand the

information contained in the information

disclosure forms.

(5) The NRSRO published information

disclosure forms that appeared not to adhere

to the attestation requirements set forth in Rule

17g-7(a)(1)(iii). The Staff recommended that the

NRSRO revise its existing procedures so that

attestations attached to information disclosure

forms comply with the requirements of the rule.

e. Medium NRSRO #2

(1) The NRSRO did not appear to enforce an

internal control governing the implementation

of and adherence to policies, procedures, and

methodologies for determining credit ratings,

as required by Section 15E(c)(3)(A). Contrary

to its policies and procedures (which require

documentation of the steps taken in the determination of a credit rating in order to permit

an after-the-fact review of a credit rating),

the NRSRO did not identify, on the relevant

documentation forms, all of the methodologies

used in the determination of a credit rating.

Additionally, the NRSRO did not accurately

record on such forms additional information

regarding the determination of some credit

ratings. The Staff recommended that the

NRSRO prepare the relevant documentation

forms as required by its policies and procedures.

(2) The NRSRO did not appear to comply

with the requirement of Rule 17g-7(a)(2) to

disclose Forms ABS Due Diligence-15E received

by the NRSRO. In several instances, thirdparty due diligence forms were not attached

to the corresponding information disclosure

forms with regard to certain structured finance

credit ratings. The NRSRO indicated that its

normal practice for attaching the due diligence

forms was not successful when the forms were

password protected. The Staff recommended

S TA F F R E P O R T

that the NRSRO publish each due diligence

form it receives in the same manner as the

related credit rating and that the NRSRO

establish policies and procedures for publishing

due diligence forms.

(3) The NRSRO did not appear to disclose

the versions of procedures and methodologies

used to determine a credit rating, as required

by Rule 17g-7(a)(1)(ii)(B). In two instances,

the Staff observed that a methodology used to

determine the credit rating was omitted from

the information disclosure form. In one of

those instances, an outdated version of another

methodology was also disclosed. The Staff

recommended that the NRSRO disclose all

applicable methodologies used to determine

a credit rating in the relevant information

disclosure form.

f. Medium NRSRO #3

(1) The NRSRO did not appear to establish,

maintain, and enforce written policies and

procedures reasonable designed to address

and manage conflicts of interest that can arise

from its business, as required by Section 15E(h)

(1). Under the NRSRO’s policies, an analyst

exposed to fee information may need to be

recused from voting on credit rating actions for

that entity for a period of time. In one instance,

an analyst was directed to recuse himself in

accordance with the policy, but did not do

so and improperly participated in two rating

committees during the time in which he was

required to be recused. It appeared that the

relevant policy did not include control elements

sufficient to ensure that required recusals are

implemented. The Staff recommended that the

NRSRO establish procedures or controls as

necessary to enforce its policy relating to analyst

exposure to fee information.

O F F I C E O F C R E D I T R AT I N G S

(2) In certain circumstances, the NRSRO did

not appear to provide information disclosure

forms to the same persons that it provided

credit ratings, as required by Rule 17g-7(a). In

connection with privately issued credit ratings,

the NRSRO created but did not distribute the

accompanying information disclosure forms.

The Staff recommended that the NRSRO, when

taking a rating action, disclose the required

information disclosure forms to the same

persons who can receive or access the credit

rating.

g. Small NRSRO #1

(1) The NRSRO published information

disclosure forms that did not appear to include

all the information required to be disclosed

under Rule 17g-7(a). The Staff observed some

information disclosure forms with missing

information. Collectively, these forms omitted

or included incomplete disclosures regarding

payment for non-credit rating services, potential

volatility of the credit rating, the sensitivity

of the credit rating to assumptions, historical

performance of the credit rating, and the

expected probability of default and expected

loss in the event of default. The Staff recommended that the NRSRO include in its information disclosure forms all disclosures required

by Rule 17g-7(a).

(2) The NRSRO did not appear to comply

with Rule 17g-3(a)(5) when filing a non-public

financial report with the Commission under the

rule. The NRSRO’s report contained incomplete

information that did not reflect the applicable

rule requirements. The Staff recommended that

the NRSRO include all required information

in the Rule 17g-3(a)(5) reports it files with the

Commission.

(3) The NRSRO did not appear to follow

Form NRSRO instructions when filing certain

information with the Commission, resulting in

incomplete information being filed. The Staff

recommended that the NRSRO’s Form NRSRO

filings adhere to the Form NRSRO instructions

and include all required information.

h. Small NRSRO #2

(1) The NRSRO did not appear to establish,

maintain, and enforce an effective internal

control structure governing adherence to

policies, procedures, and methodologies for

determining credit ratings, as required by

Section 15E(c)(3)(A). Specifically, the NRSRO

did not appear to have effective controls for

determining a metric specified in the NRSRO’s

methodology that can impact the rating

outcome. In two instances observed by the Staff,

a change made by the NRSRO to the metric

resulted in a significant upward change to the

credit rating assigned to the entity, notwithstanding that the same methodology was used

to determine the credit ratings. The NRSRO’s

controls did not ensure that the proper metric

was used when determining credit ratings. The

Staff recommended that the NRSRO enhance

its internal controls with respect to its policies,

procedures, and methodologies pertaining to

establishing this metric when determining credit

ratings. The Staff also recommended that the

NRSRO evaluate the effectiveness of its internal

controls governing the implementation of and

adherence to its methodologies for determining

different types of credit ratings regarding the

same entity.

The Staff identified such essential finding as a

material regulatory deficiency.

In its response, the NRSRO stated that it plans

to require rating committees to approve the

established metric prior to the determination

of a credit rating. The NRSRO plans to test

the effectiveness of the control after it has

been implemented and to conduct periodic

reviews to ensure that the NRSRO’s process

for determining the metric to be used is appropriate. The NRSRO further indicated that it

has enhanced certain controls pertaining to the

determination of different types of credit ratings

regarding the same entity and that it intends

to make additional changes to its procedures

and controls to address the findings of an

independent consultant that it had hired to

review and evaluate aspects of its credit rating

process for the different types of ratings.

(2) The NRSRO did not appear to establish,

maintain, and enforce an effective internal

control structure governing implementation

of and adherence to policies, procedures, and

methodologies for determining credit ratings, as

required by Section 15E(c)(3)(A). This finding

specifically relates to controls regarding data

quality, vetting process, and the acquisition of

information that appeared to be ineffective.

Although the NRSRO had a process intended

to gain an understanding of the issuer and

obligation to be rated, the NRSRO appeared

not to have engaged in such process in this

instance and did not appear to have adequate

controls to ensure that such a process was

undertaken when appropriate. Another control

of the NRSRO requires a review to establish

if data is consistent with analyst expectations.

This control appeared to be ineffective in identifying apparent inconsistencies between certain

financial information provided by the issuer

and other representations made by the issuer.

Finally, the control afforded by the NRSRO’s

rating committee appeared to be ineffective

in ensuring that all material information was

considered in determining the credit rating. Staff

S TA F F R E P O R T

recommended that the NRSRO enhance its

internal controls governing implementation of

and adherence to its policies, procedures, and

methodologies for determining credit ratings as

they pertain to the data quality, vetting process,

and acquisition of information on issuers.

The Staff identified such essential finding as a

material regulatory deficiency.

In its response, the NRSRO stated that it will

review and enhance its procedures for reviewing

and documenting the information it uses to

determine credit ratings. Additionally, the

NRSRO indicated that it will strengthen internal

controls governing what constitutes a sufficient

amount of high quality information for its

ratings to help ensure that it does not issue or

maintain a credit rating without sufficient access

to such information.

(3) The NRSRO produced information

disclosure forms that did not appear to include

all the information required to be disclosed

under Rule 17g-7(a). Specifically, the Staff

observed some information disclosure forms

containing a link purporting to provide the

historical performance disclosure required

by the rule. Clicking on the link displayed

an error message rather than the required

information. The Staff recommended that the

NRSRO publish information disclosure forms

containing the required information for all

rating actions.

(4) The NRSRO did not appear to establish,

maintain, enforce, and document an effective

internal control structure governing adherence

to policies, procedures, and methodologies

for determining credit ratings, as required

by Section 15E(c)(3)(A). More specifically,

the NRSRO did not appear to have effective

O F F I C E O F C R E D I T R AT I N G S

internal controls to ensure that audits of its

rating files identify whether analysts have

adhered to the NRSRO’s procedures and

methodologies for determining credit ratings.

The controls that are in place may lack independence, given that the person performing the

audits also acts as a primary rating analyst and

in certain cases reviews their own work. The

Staff recommended that the NRSRO ensure

the independence of reviews and audits so that

they function as an effective internal control

governing adherence to the NRSRO’s policies,

procedures, and methodologies for determining

credit ratings.

(5) The NRSRO’s policies and procedures

did not appear to be reasonably designed to

address and manage conflicts of interest that

could arise from its business and to prevent

the misuse of material, non-public information as required by Section 15(h)(1) and

Section 15E(g)(1), respectively. The apparent

deficiencies in the NRSRO’s policies and

procedures relate to the use of shared email

addresses. The NRSRO’s existing policies and

procedures do not address access to shared

email addresses, even though such shared

email addresses are used by the NRSRO.

The Staff observed one shared email address

accessed by both analytical and business

personnel and another where the extent of

access was unknown due to an inability of

the NRSRO to audit such access. In certain

instances, it appears that analytical personnel

were exposed to fee information through a

shared email address, and the use of such

addresses without appropriate procedures or

controls creates the possibility of inappropriate interaction between analytical and sales

personnel or the unauthorized dissemination

of material non-public information though

such mailboxes. The Staff recommended that

the NRSRO establish, maintain, enforce, and

document policies and procedures reasonably

designed to address and manage conflicts of

interest and prevent the misuse of material

non-public information with respect to shared

email addresses.

■

i. Small NRSRO #3

The NRSRO’s policies and procedures did not

appear to be reasonably designed to address

and manage conflicts of interest that could arise

from its business as required by Section 15E(h)

(1). The policies and procedures in question

relate to securities holdings of employees, and

such policies and procedures appeared not

to prevent the issuance and maintenance of a

credit rating subject to the prohibited conflict

of interest set forth in Rule 17g-5(c)(2). The

NRSRO’s policies and procedures required

employees with an interest in a rated entity not

to participate in determining credit ratings of

that entity. However, the NRSRO discovered

that an analyst had participated in two rating

committees while holding securities of a rated

entity. The Staff recommended that the NRSRO

establish, maintain, and enforce written policies

and procedures reasonably designed to address

and manage conflicts of interest with respect to

securities holdings.

Additionally, one of the NRSROs appeared not to

comply with certain requirements in a Commission

order. The Staff recommended that the NRSRO

comply with these requirements.

In total the Staff communicated 23 essential

findings to the NRSROs at the conclusion of the

2022 Section 15E examinations. Of these essential

findings:

■

nine related to disclosure or reporting issues,

implicating Rule 17g-3, Rule 17g-7(a), and

Form NRSRO;

five related to internal control issues, implicating

Section 15E(c)(3)(A);

four related to issues addressing or managing

conflicts of interest, implicating Section 15E(h)

(1) and Rule 17g-5(c);23

three related to issues regarding the prevention

of misuse of material, non-public information,

implicating Section 15E(g)(1);24

one related to policies and procedures with

respect to credit rating symbols, numbers, or

scores, implicating Rule 17g-8(b)(1);

one related to the production of records to

examiners, implicating Rule 17g-2(f); and

one related to compliance with a prior

Commission order.

4. Responses to Recommendations from

the 2021 Section 15E Examinations

To assess whether NRSROs appropriately

addressed findings and recommendations from

the 2021 Section 15E examinations, the Staff

reviewed each NRSRO’s written response

describing its planned remedial measures,

participated in calls with each NRSRO to discuss

its written response, and requested additional

documentation, as appropriate.

During the 2022 Section 15E examinations, the

Staff assessed each NRSRO’s progress in implementing remedial measures such as establishing

new or enhancing existing policies or procedures

or internal controls, or adding personnel and other

resources in areas such as compliance, information

technology, or analytics. The Staff takes into

account that NRSROs may not be able to fully

implement remedial measures and/or that the Staff

One of these findings also implicated material, non-public information. This finding is double counted within the list as a

result.

One of these findings also implicated conflicts of interest. This finding is double counted within the list as a result.

S TA F F R E P O R T

may not be able to fully assess the effectiveness

of these measures during the 2022 Section 15E

examinations.

The Staff has determined all findings and recommendations from the 2021 Section 15E examinations have been appropriately addressed, except

as noted below. NRSROs generally addressed the

findings and recommendations from the 2021

Section 15E examinations by taking remedial

measures such as adopting new or enhancing

existing policies or procedures, internal controls,

or systems and processes, and by adding personnel

and other resources.

In one instance, the Staff determined that a small

NRSRO had completed its remedial efforts but that

such efforts did not appropriately address the corresponding finding and recommendation. In 2021,

the Staff found that several information disclosure

forms published by the small NRSRO did not

appear to include required disclosures regarding the

source of payment for the credit rating, potential

volatility of the credit rating, and sensitivity of the

credit rating to assumptions made by the NRSRO.

The Staff recommended that the NRSRO ensure

that its information disclosure forms contain all

required disclosures. While the Staff observed in the

2022 examination that the NRSRO made efforts to

address the previous finding, the Staff determined

that the NRSRO did not appropriately address the

2021 finding because the NRSRO’s remediation

O F F I C E O F C R E D I T R AT I N G S

did not address the requirements to disclose the

potential volatility of the credit rating and the

sensitivity of the credit rating to assumptions made

by the NRSRO.

In another instance, the Staff was unable to

determine whether its finding and recommendation had been appropriately addressed because

the NRSRO’s remediation is ongoing and all

information necessary to assess the remediation is

not yet available. In 2021, the Staff found that a

medium NRSRO did not appear to make certain

disclosures required by Rule 17g-7(a)(1)(ii)(B),

relating to the version of the NRSRO’s rating

methodology used for certain rating actions.

The Staff recommended that the NRSRO ensure

that it discloses in its information disclosure

forms the version of the methodology it used to

determine the credit ratings. The Staff was unable

to assess remediation in the 2022 examination.

The NRSRO has indicated it will update all

relevant disclosure forms on its website to include

expanded disclosure of methodologies used in

determining the credit ratings. The NRSRO also

indicated it would update policies and procedures

that govern the disclosure of methodologies

used in determining credit ratings. The NRSRO

is developing a work plan to address relevant

updates. The Staff will assess remediation in the

2023 Section 15E examination.

IV. STATE OF COMPETITION,

TRANSPARENCY, AND CONFLICTS

OF INTEREST

A. COMPETITION

1. Select NRSRO Statistics

ections IV.A.1.a through 1.c below summarize

and discuss certain information reported

by NRSROs on Form NRSRO or pursuant

to Rule 17g-3 that provides insight into the

state of competition among NRSROs. While this

information indicates that the large NRSROs

continue to account for the highest percentages of

outstanding ratings, it also shows that the small

and medium NRSROs continue to compete with

the large NRSROs in certain rating categories. For

instance, the information shows that AMB has

the greatest number of ratings outstanding in the

insurance category and that DBRS and KBRA have

gained significant ratings share in the asset-backed

securities category.25

year, in each rating category for which it is registered.26 This information, for the calendar year

ending December 31, 2021, is summarized in

Charts 2 through 10 below and can be useful in

determining the breadth of an NRSRO’s coverage

with respect to issuers, obligors, and securities or

money market instruments within a particular

rating category:

■

a. NRSRO Credit Ratings Outstanding

Each NRSRO annually reports not later than

March 31st the number of credit ratings

outstanding, as of the end of the preceding calendar

■

Chart 2 depicts the number of credit ratings

each NRSRO had outstanding in each rating

category for which it was registered as of

December 31, 2021.

Chart 3 depicts the percentage of each NRSRO’s

outstanding credit ratings of the total credit

ratings outstanding in each category and overall.

Chart 4 illustrates the relative size of each rating

category based on the aggregate number of

ratings reported outstanding by all NRSROs.

Chart 5 illustrates the percentage of ratings

each NRSRO had outstanding across all rating

categories.

As discussed in Section IV.A.2 of this Report, information available on the websites of Commercial Mortgage Alert and

Asset-Backed Alert also shows that DBRS and KBRA have achieved significant market shares in the asset-backed securities

rating category over the past few years.

Annual certifications on Form NRSRO must be filed with the Commission on EDGAR pursuant to Rule 17g-1(f) and

made publicly available without cost on each NRSRO’s website pursuant to Rule 17g-1(i). The number of outstanding

credit ratings for each rating category for which an NRSRO is registered is reported on Item 7A of Form NRSRO.

S TA F F R E P O R T

■

Chart 6 illustrates the percentage of ratings

each NRSRO had outstanding across all rating

categories other than the government securities

category.

Chart 7 depicts the percentage of ratings each

NRSRO had outstanding in the government

securities category.

Chart 8 depicts the change in the number of

non-government ratings outstanding for each

NRSRO over the prior five years.

Chart 9 depicts the change in the number of

non-government ratings outstanding for each

small and medium NRSRO over the prior five

years.

Chart 10 depicts the change in the number of

asset-backed securities ratings outstanding for

each NRSRO over the prior five years.

While comparing the number of ratings

outstanding among NRSROs provides a

cumulative view on the state of competition over

time,27 comparing the number of ratings issued by

such NRSROs in a given period provides a more

current picture of competition among NRSROs.

Consequently, the information described in Charts

8 through 10 (which show changes in ratings

outstanding over a five year period) may provide an

indication of how NRSROs have been competing

in recent years. Additionally, the information

described in Section IV.A.2 of this Report (relating

to recent market share developments in the assetbacked securities rating category), which provides

information about ratings issued each year since

2020, may provide additional insight regarding the

current competitive landscape among the NRSROs

in the asset-backed securities rating category.

There are additional limitations to assessing the

state of competition in each rating category and in

the aggregate based on the number of outstanding

ratings. For instance, some NRSROs have pursued

business strategies to specialize in particular rating

categories or sub-categories.28 Also, the reported

information does not reflect any credit ratings being

issued by NRSROs in rating categories in which

they are not registered with the Commission, nor

does it reflect ratings issued by an affiliate of an

NRSRO unless the affiliate is identified as a credit

rating affiliate.29

Further, when reporting its outstanding ratings,

each NRSRO makes its own determination of the

applicable rating category into which each of its

ratings falls. The classification of ratings into the

five rating categories is not necessarily consistent

across NRSROs.30

Chart 2 provides the number of outstanding credit

ratings reported by each NRSRO in its annual

certification for the calendar year ending December

31, 2021, in each of the five rating categories

identified in Section 3(a)(62)(A) for which the

NRSRO is registered, as applicable, as well as the

percentage change in total ratings for each NRSRO

from 2020 to 2021. Chart 3 displays the percentage

of each NRSRO’s outstanding credit ratings of the

total outstanding credit ratings of all NRSROs,

for each rating category in which the NRSRO was

The ratings counts disclosed on Item 7A of Form NRSRO include outstanding credit ratings, regardless of when they were

issued. As such, they reflect the rating activity of NRSROs over a period of years.

For example, AMB has traditionally focused on rating insurance companies and their affiliates.

An NRSRO identifies its credit rating affiliates on Item 3 of Form NRSRO.

Effective January 1, 2015, Item 7A of Form NRSRO and the corresponding Instructions were amended to clarify the

manner in which the number of outstanding credit ratings should be calculated and presented. The clarifying amendments

were designed to help ensure that rating count disclosures are consistent across NRSROs. See Nationally Recognized

Statistical Rating Organizations, Release No. 34-72936 (Aug. 27, 2014), 79 FR 55078, 55220-22 (Sept. 15, 2014) (2014

Adopting Release), available at https://www.govinfo.gov/content/pkg/FR-2014-09-15/pdf/2014-20890.pdf (discussing the

clarifying amendments with respect to Item 7 of Form NRSRO).

O F F I C E O F C R E D I T R AT I N G S

registered, as reported by each NRSRO in its annual

certification for the calendar year ending December

31, 2021, as well as the percentage increase or

decrease in total ratings from 2020 to 2021.31

Chart 2. Number of Outstanding Credit Ratings as of December 31, 2021 by Rating Category

Financial

Institutions

Insurance

Companies

Corporate

Issuers

AssetBacked

Securities

Government

Securities

Total

Ratings

Year-Over-Year Change

in Total Ratings (2020

to 2021)

AMB

N/R

7,286

977

N/R

8,268

0.33%

DBRS

9,704

232

3,254

25,535

22,856

61,581

-0.31%

EJR

5,503

474

8,110

N/R

14,087

-31.06%

Fitch

32,774

3,148

20,711

34,653

177,403

268,689

-0.01%

789

N/R

558

N/R

455

1,802

8.49%

JCR

928

3,148

N/R

346

4,519

3.77%

KBRA

1,657

182

455

18,315

9,548

30,157

85.09%

Moody’s

34,003

2,624

33,203

50,815

562,211

682,856

0.70%

S&P

52,947

6,919

56,745

37,593

935,801

1,090,005

1.17%

Total

138,305

20,962

127,161

166,916

1,708,620

2,162,399

1.17%

NRSRO

N/R indicates that the NRSRO was not registered in the applicable rating category as of the reporting date.

Percentages have been rounded to the nearest one-hundredth of one percent.

Sources: NRSRO annual certifications for the 2020 and 2021 calendar years, Item 7A on Form NRSRO.

Chart 3. Percentage by Rating Category of Each NRSRO’s Outstanding Credit Ratings of

the Total Outstanding Credit Ratings of all NRSROs as of December 31, 2021

Financial

Institutions

Insurance

Companies

Corporate

Issuers

AssetBacked

Securities

Government

Securities

Total

Ratings

Change in % of Total

Ratings from 2020 to

2021

AMB

N/R

34.8%

0.8%

<0.1%

N/R

0.4%

-0.02%

DBRS

7.0%

1.1%

2.6%

15.3%

1.3%

2.8%

-0.22%

EJR

4.0%

2.3%

6.4%

N/R

0.7%

-1.46%

Fitch

23.7%

15.0%

16.3%

20.8%

10.4%

12.4%

-0.20%

0.6%

N/R

0.4%

N/R

<0.1%

0.1%

0.03%

JCR

0.7%

0.5%

2.5%

N/R

<0.1%

0.2%

0.03%

KBRA

1.2%

0.9%

0.4%

11.0%

0.6%

1.4%

0.94%

Moody’s

24.6%

12.5%

26.1%

30.4%

32.9%

31.6%

0.43%

S&P

38.3%

33.0%

44.6%

22.5%

54.8%

50.4%

0.47%

NRSRO

N/R indicates that the NRSRO was not registered in the applicable rating category as of the reporting date.

Percentages have been rounded to the nearest one-hundredth of one percent.

Sources: NRSRO annual certifications for the 2020 and 2021 calendar years, Item 7A on Form NRSRO.

For example, according to Chart 2, AMB reported that it had 7,286 insurance company credit ratings, and the total of

the credit ratings in that category reported by all NRSROs was 20,962. Therefore, the percentage of NRSRO insurance

company ratings attributable to AMB was approximately 34.8% (i.e., 7,286 divided by 20,962, expressed as a percentage),

as shown on Chart 3.

S TA F F R E P O R T

The large NRSROs accounted for 94.4% of

all the ratings outstanding as of December 31,

2021—slightly lower than their 94.7% share

as of December 31, 2020.32 The aggregate

share of outstanding credit ratings of the large

NRSROs decreased in two of the five categories,

most significantly in the asset-backed securities

category, which decreased by about 2 percentage

points. The large NRSROs as a group also

lost a small amount of their aggregate share of

outstanding credit ratings in the government

securities category, which may be attributable,

in part, to the significant increase in government

ratings reported by KBRA. KBRA reported 9,548

government ratings outstanding as of December

31, 2021, compared to only 141 as of December

31, 2020. However, given the large number of

government ratings outstanding in the aggregate,

KBRA’s government ratings outstanding reflect

only 0.56% of the total government ratings.

Charts 2 and 3 also show that AMB, a medium

NRSRO, had the most credit ratings outstanding

in the insurance category. In each of the past eight

years, AMB reported that it had the most credit

ratings outstanding in the insurance category.33

Chart 4 depicts the percentages of outstanding

credit ratings attributable to each rating category,

as reported by the NRSROs in their annual

certifications for the calendar year ending

December 31, 2021.

As illustrated by Chart 4, the largest proportion

of the aggregate credit ratings reported to be

outstanding were in the government securities

category, which may be attributable to the large

number of government bond issuers (e.g., issuers

of municipal securities) and their multiple debt

offerings. The government securities category

accounted for 79.0% of the total number of

credit ratings reported across all categories and,

as shown on Chart 3 and Chart 7, is also the

most concentrated rating category, with the large

NRSROs accounting for 98.1% of all outstanding

government securities ratings.

Chart 4. Breakdown of Ratings Reported

Outstanding by Rating Category as of

December 31, 2021

7.7%

6.4%

5.9%

79.0%

1.0%

Government Securities 79.0%

Asset-Backed Securities 7.7%

Financial Institutions 6.4%

Corporate Issuers 5.9%

Insurance Companies 1.0%

Percentages have been rounded to the nearest

one-tenth of one percent.

Sources: NRSRO annual certifications for the 2021

calendar year, Item 7A on Form NRSRO.

In 2007, the year when NRSROs began reporting outstanding ratings on Form NRSRO, the large NRSROs accounted for

98.8% of all outstanding ratings.

See 2021 Staff Report on NRSROs, which can be found under “Staff Reports on Nationally Recognized Statistical Rating

Organizations” and the Annual Reports for prior years, which can be found under “Annual Reports to Congress” in the

“Reports and Studies” section of the OCR webpage, available at https://www.sec.gov/ocr/ocr-reports-and-studies.html.

O F F I C E O F C R E D I T R AT I N G S

Chart 5. Breakdown of Ratings Reported

Outstanding by NRSRO as of December 31, 2021

Chart 6. Breakdown of Non-Government Securities

Ratings Reported Outstanding by NRSRO as of

December 31, 2021

31.6%

20.1%

12.4%

8.5%

1.4%

4.5%

2.8%

1.8%

3.1%

0.7%

26.6%

0.4%

0.9%

0.2%

34.0%

0.1%

50.4%

0.3%

S&P 50.4%

EJR 0.7%

Moody's 31.6%

AMB 0.4%

S&P 34.0%

EJR 3.1%

JCR 0.2%

Moody's 26.6%

AMB 1.8%

HR 0.1%

Fitch 20.1%

JCR 0.9%

DBRS 8.5%

HR 0.3%

Fitch 12.4%

DBRS 2.8%

KBRA 1.4%

KBRA 4.5%

Percentages have been rounded to the nearest

one-tenth of one percent.

Sources: NRSRO annual certifications for the 2021

calendar year, Item 7A on Form NRSRO.

Chart 5 depicts the percentages of the credit ratings

outstanding that are attributable to each NRSRO

over all the rating categories; Chart 6 depicts the

percentages of the credit ratings outstanding that

are attributable to each NRSRO over all the rating

categories other than the government securities

category; and Chart 7 depicts the percentages of

the credit ratings outstanding that are attributable

to each applicable NRSRO in the government

securities category, in each case, as reported by

each NRSRO in its annual certification for the

calendar year ending December 31, 2021.

A comparison of Chart 5 to Chart 6 illustrates that there is less concentration in the

non-government securities rating categories.

S&P’s and Moody’s percentage share of all

Percentages have been rounded to the nearest

one-tenth of one percent.

Sources: NRSRO annual certifications for the 2021

calendar year, Item 7A on Form NRSRO.

outstanding ratings declines by 16.4 and 5.0

percentage points, respectively, when government

securities are excluded. Fitch’s percentage share of

outstanding ratings, on the other hand, increases

by 7.7 percentage points when government

securities are excluded. The percentage share for

all the remaining NRSROs also increases when

government securities are excluded.

Further, when government securities are included

in the total calculation, each of the small and

medium NRSROs, except for DBRS and KBRA,

has 0.7% or less of all outstanding ratings,

making it difficult to assess their relative rating

shares. When government securities are excluded,

a clearer picture of the relative percentage

shares of the small and medium NRSROs in

S TA F F R E P O R T

Chart 7. Breakdown of Government Securities

Ratings Reported Outstanding on December 31, 2021

32.90%

10.38%

1.34%

0.56%

0.03%

54.77%

0.02%

S&P 54.77%

KBRA 0.56%

Moody's 32.90%

HR 0.03%

Fitch 10.38%

JCR 0.02%

DBRS 1.34%

Percentages have been rounded to the nearest

one-hundredth of one percent.

This chart only includes the NRSROs that are registered

in the government securities category.

Sources: NRSRO annual certifications for the 2021

calendar year, Item 7A on Form NRSRO.

the categories in which they are active can be

observed, as illustrated in Chart 6. The percentage

share of most of the small and medium NRSROs

for all rating categories other than government

securities as of December 31, 2021 did not change

significantly compared to its percentage share as

of December 31, 2020.34 The largest percentage

share changes were KBRA, whose percentage

share increased by 0.9%, and EJR whose

percentage share declined by 1.5%.

Chart 8 depicts the change in ratings outstanding

over a period of five years for all ratings other

than ratings in the government securities category

reported outstanding by NRSROs, as reported

by each NRSRO in its annual certification for the

calendar year ending December 31, 2017 through

2021.

As illustrated in Chart 8, reported ratings

outstanding has remained mostly steady across all

NRSROs over the past five years and, consistent

with the information shown in Chart 3 for the year

ending December 31, 2021, the larger NRSROs

have significantly more ratings outstanding than

the medium and small NRSROs. While modest

on the scale of ratings outstanding by the large

NRSROs, Chart 8 shows a steady increase in

ratings outstanding for both DBRS and KBRA over

the past five years. The extent of this increase for

DBRS and KBRA is more apparent when viewing

changes in ratings outstanding on a scale that

includes only the medium and small NRSROs, as

illustrated in Chart 9.

Chart 10 depicts the change in ratings outstanding

over a period of five years for all ratings in the

asset-backed securities rating class reported

outstanding by NRSROs.

As discussed in more detail in Section IV.A.2,

medium NRSROs have been able to make inroads

in the asset-backed securities rating class. Chart 10

provides a graphic representation of the increased

competition in this rating class since 2017. Both

DBRS and KBRA have steadily increased the

number of ratings reported outstanding over the

A comparison of Chart 6 in this Report with Chart 11 in Section IV.A.1 of the 2021 Staff Report on NRSROs (available

at https://www.sec.gov/files/2022-ocr-staff-report.pdf) shows that each small and medium NRSRO’s total non-government

securities ratings share as of December 31, 2021 remained constant or increased modestly compared to the ratings shares

as of December 31, 2020.

O F F I C E O F C R E D I T R AT I N G S

Chart 8. Total Non-Government Ratings Issued by All NRSROs as of December 31, 2021

180,000

160,000

S&P

140,000

Moody’s

120,000

100,000

Fitch

80,000

60,000

DBRS

40,000

KBRA

EJR

AMB

JCR

20,000

2017

2018

2019

2020

2021

Chart 9. Total Non-Government Ratings Issued by Medium and Small NRSROs as of December 31, 2021

45,000

40,000

DBRS

35,000

30,000

25,000

KBRA

20,000

15,000

EJR

10,000

AMB

5,000

JCR

2017

2018

past five years. While Moody’s and S&P continue

to report the most ratings outstanding in this

class, the number of outstanding ratings reported

by these NRSROs is lower in 2021 as compared

2019

2020

2021

to 2017. Fitch’s number of ratings has increased

since 2017, and ratings counts for each of Fitch,

Moody’s, and S&P have remained fairly steady in

recent years.

S TA F F R E P O R T

Chart 10. Total ABS Ratings Issued by All NRSROs as of December 31, 2021

70,000

60,000

Moody’s

50,000

40,000

S&P

Fitch

30,000

DBRS

20,000

KBRA

10,000

2017

2018

2019

2021

b. NRSRO Analytical Staffing Levels

Chart 11. NRSRO Credit Analysts and

Credit Analyst Supervisors

Credit Analysts

(Including Credit

Analyst Supervisors)

Credit Analyst

Supervisors

AMB

155

DBRS

507

EJR

Fitch

1,288

330

NRSRO

2020

JCR

KBRA

214

Moody’s

1,670

256

S&P

1,577

127

Total

5,550

971

Chart 11 reports the number of credit analysts

(including credit analyst supervisors) and the

number of credit analyst supervisors employed by

each of the NRSROs, as reported on Exhibit 8 to

Form NRSRO.35

The large NRSROs report employing 4,535 credit

analysts (including supervisors), which is approximately 81.6% of the total number employed by all

of the NRSROs. The small and medium NRSROs,

in the aggregate, employ approximately 18.4% of

all credit analysts employed by NRSROs.36 Total

NRSRO analytical staff declined by about 1%

compared to the information reported in the prior

year annual certifications.

Sources: Exhibit 8 to Form NRSRO, in effect as of each

NRSRO’s annual certification for the 2021 calendar year

filed on or before March 31, 2022.

Effective January 1, 2015, the Instructions for Exhibit 8 to Form NRSRO were amended to clarify that NRSROs must

include credit analyst supervisors in the total number of credit analysts disclosed on Exhibit 8. This amendment was

designed to enhance consistency of the disclosures on Exhibit 8 of Form NRSRO. See 2014 Adopting Release, 79 FR at

55222 (discussing the clarifying amendments to Exhibit 8 of Form NRSRO).

Based on reports by the NRSROs on their annual certifications for the applicable calendar year, the small and medium

NRSROs, in the aggregate, employed approximately 11.4% of all NRSRO analysts in 2014, 12.8% of all NRSRO

analysts in 2015, 14.6% of all NRSRO analysts in 2016, 15.2% of all NRSRO analysts in 2017, 15.4% of all NRSRO

analysts in 2018, 17.0% of all NRSRO analysts in 2019, and 16.3% of all NRSRO analysts in 2020.

O F F I C E O F C R E D I T R AT I N G S

c. NRSRO Revenue

Chart 12 shows the percentage of total NRSRO

revenues attributable to the large, medium, and

small NRSROs since 2018.37 Changes to the

composition of certain registered NRSROs in

recent years may limit the comparability of the

revenue distribution across the years.38 Nonetheless,

observations of changes to the distribution of

revenue may provide some insight into the overall

competitive landscape. Following a small increase

in fiscal year 2020, the percentage of aggregate

NRSRO revenue reported by the large NRSROs

has fallen below the level reported for fiscal year

2019. The revenue share of the medium NRSROs

has generally remained steady since 2018. In fiscal

year 2021, the medium NRSROs regained most of

the share of revenue lost in 2020, a year impacted

by the onset of and response to COVID-19. The

small NRSROs’ share of overall NRSRO revenue

has also remained consistent over this time

period, and increased by 0.3% in fiscal year 2021.

Although this percentage increase is modest in

terms of aggregate revenue across all NRSROs, it

represents a 50% increase in revenue attributable

to the small NRSROs compared to fiscal years

2020 and 2019.

Further revenue information is available for

NRSROs that are owned, in whole or in part, by

public companies. The following information is

from the 2021 annual reports of public companies

with an ownership interest in an NRSRO:

■

Chart 12. NRSRO Fiscal Year Revenue as a

Percentage of Aggregate Reported Revenue

2021

2020

2019

2018

Large NRSROs

93.2%

94.1%

93.3%

93.5%

Medium NRSROs

5.6%

5.1%

5.9%

Small NRSROs

1.1%

0.8%

0.7%

Percentages have been rounded to the nearest

one-tenth of one percent.

Sources: Financial reports filed with the Commission

under Rule 17g-3(a)(3) for fiscal years ended 2019

through 2021. For the preparation of this Report, if an

NRSRO reported revenue in a foreign currency, the

revenue was converted to U.S. dollars using the average

exchange rate over all U.S. banking days in the fiscal

year of such NRSRO.

■

Moody’s Corporation, which is Moody’s parent

company, reported $3.8 billion in Moody’s

external revenue for 2021, a 16% increase from

2020. This increase, according to the report,

was due to strong growth mainly driven by

leveraged finance issuance, as issuers refinanced

existing debt and funded merger and acquisition

activity, and increased collateralized loan

obligation and commercial mortgage-backed

securities activity amid favorable market

conditions. The corporate finance group,

financial institutions group, public, project and

infrastructure finance group, and structured

finance group of Moody’s had an increase in

revenue compared to 2020 results.39

S&P Global Inc. (S&P Global), which is S&P’s

parent company, reported $4.1 billion in S&P’s

revenue for 2021, a 14% increase from 2020.

This increase, according to the report, was

due to higher bank loan ratings revenue and

Pursuant to Rule 17g-3(a)(3), each NRSRO is required to file annually with the Commission an unaudited revenue report,

which includes revenue received from determining and maintaining credit ratings, subscribers and subscription services,

granting licenses or rights to publish credit ratings, and other services and products. NRSROs are not required to make

these revenue reports publicly available.

Following its acquisition of DBRS in July 2019, Morningstar, Inc. began to integrate the businesses of DBRS and

Morningstar Credit Ratings, LLC (MCR), which at the time was also registered as an NRSRO. Effective December 30,

2019, MCR withdrew its registration as an NRSRO. MCR continued to operate as a credit rating affiliate of DBRS until

November 23, 2020.

See Moody’s Corporation, Annual Report on Form 10-K for the year ended December 31, 2021, available at https://www.

sec.gov/ix?doc=/Archives/edgar/data/0001059556/000105955622000012/mco-20211231.htm.

S TA F F R E P O R T

■

structured finance revenue. Non-transaction

revenue increased primarily due to an increase

in surveillance, entity credit ratings, subsidiary

revenue, and higher revenue from S&P’s

Ratings Evaluation Service, an analytical tool

for entities that are considering strategic or

financial initiatives that could impact their

creditworthiness.40

Morningstar, Inc., which is DBRS’s parent

company, reported $271 million in revenue

from DBRS, a 30.8% increase in revenue from

2020. This increase, according to the report,

was due to robust commercial and residential

mortgage-backed securities issuance, growth

from fundamental ratings, expansion into

U.S. and European corporate middle markets,

and increased issuance in Canadian non-bank

financials. Transaction-based revenue from

one-time, transaction-based fees for ratings

on newly-issued securities grew 31.2% in

2021, which represented 65.7% of the revenue

generated by DBRS. The remainder is classified

as transaction-related revenue or revenue

generated by annual fees tied to surveillance,

research, and other services.41

Recent regulatory filings show a decline in revenues

at Moody’s and S&P in the first half of 2022.

Moody’s Corporation reported $1.5 billion in

Moody’s external revenue for the first half of 2022,

a 24% decrease compared with the same period

in 2021. This decrease, according to the report,

was due to declines in leveraged finance (high-yield

corporate debt and bank loans) issuance resulting

from market volatility relating to macroeconomic

uncertainties, rising borrowing costs, and the

Russia-Ukraine conflict.42

S&P Global reported $1.6 billion in revenue at

S&P for the first half of 2022, a 20% decrease

compared with the same period in 2021. This

decrease, according to the report, was due to an

unfavorable impact from foreign exchange rates,

lower corporate bond ratings revenue driven by

a decrease in high-yield and investment-grade

issuance volumes, lower bank loan ratings

revenue, decreased issuance of U.S. collateralized

loan obligations, and reduced issuance volumes

resulting from unfavorable macroeconomic conditions in 2022.43

Morningstar, Inc. reported $134.4 million in DBRS

revenue for the first half of 2022, a 7.8% increase

compared with the same period in 2021. This

increase, according to the report, was achieved

despite softer issuance across most geographies and

asset classes. Additionally, while there was strong

growth in commercial mortgage-backed securities

issuance, this was partially offset by declines in

asset-backed securities, residential mortgage-backed

securities, and corporate and financial institution

ratings. Finally, structured finance issuance slowed

sharply due to the geopolitical environment and

increased interest-rate volatility and liquidity

premiums in Europe.44

See S&P Global Inc., Annual Report on Form 10-K for the year ended December 31, 2021, available at https://www.sec.

gov/ix?doc=/Archives/edgar/data/0000064040/000006404022000055/spgi-20211231.htm.

See Morningstar, Inc., Annual Report on Form 10-K for the year ended December 31, 2021, available at https://www.sec.

gov/ix?doc=/Archives/edgar/data/1289419/000128941922000005/morn-20211231.htm.

See Moody’s Corporation, Quarterly Report on Form 10-Q for the period ended June 30, 2022, available at https://www.

sec.gov/ix?doc=/Archives/edgar/data/0001059556/000105955622000051/mco-20220630.htm.

See S&P Global Inc., Quarterly Report on Form 10-Q, for the period ended June 30, 2022, available at https://www.sec.

gov/ix?doc=/Archives/edgar/data/0000064040/000006404022000143/spgi-20220630.htm.

See Morningstar, Inc., Quarterly Report on Form 10-Q for the period ended June 30, 2022, available at https://www.sec.

gov/ix?doc=/Archives/edgar/data/1289419/000128941922000014/morn-20220630.htm.

O F F I C E O F C R E D I T R AT I N G S

2. Market Share Observations in the AssetBacked Securities Rating Category

As noted in Section IV.A.1.a of this Report, the

number of ratings recently issued by NRSROs

may give a clearer picture of competition than

the number of ratings each NRSRO currently has

outstanding. For example, Chart 3 indicates that,

as of December 31, 2021, DBRS and KBRA, the

only medium or small NRSROs that actively rate

asset-backed securities,45 collectively had 26.3%

of the ratings outstanding in the asset-backed

securities rating category, which increased from

24.3% as of December 31, 2020. However,

the market share data discussed in this Section

IV.A.246 shows that even higher market share

percentages have been obtained by DBRS and

KBRA in recent years for ratings issuance with

respect to certain types of asset-backed securities.

This market share data continues the growth

trend the Staff has observed since 2011 for some

medium NRSROs47 in the asset-backed securities

rating category.

Section IV.A.2.a and 2.b below discuss NRSRO

market share information with respect to certain

asset-backed securities, based on information

from the databases available on the Commercial

Mortgage Alert and Asset-Backed Alert websites.48

a. CMBS

Charts 13 through 16 provide information

concerning U.S.49 CMBS50 ratings by NRSROs,

based on information from the Commercial

Mortgage Alert database. NRSRO market share

varies between the conduit CMBS and singleborrower CMBS segments,51 the two segments

EJR, HR, and JCR are not registered with the Commission in the asset-backed securities category. See Chart 1. While

AMB is registered to rate asset-backed securities, as shown in Chart 2, it only has five outstanding asset-backed securities

ratings as of December 31, 2021, all of which were issued before 2019. For these reasons, this section only discusses

observations related to DBRS, Fitch, KBRA, Moody’s, and S&P, which are the five NRSROs registered in the asset-backed

securities category with current asset-backed securities rating activity.

Unless noted otherwise, all market share percentages in this Section IV.A.2 are based on dollar amounts of issuance.

Prior to being integrated with DBRS, MCR also actively rated asset-backed securities.

See Commercial Mortgage Alert website, available at https://www.greenstreet.com/news/commercial-mortgage-alert and

Asset-Backed Alert website, available at https://www.greenstreet.com/news/asset-backed-alert. The information in Charts

13 through 16 is based on information from the Commercial Mortgage Alert’s CMBS database as of August 5, 2022, and

the information in Charts 17 through 19 and the accompanying discussion is based on information from the Asset-Backed

Alert’s ABS database as of August 5, 2022. Although analysis of the information from the databases may provide insight

into recent developments regarding the state of competition among NRSROs in the asset-backed securities rating category,

it has certain limitations. For instance, the information treats each transaction as one undivided whole. An NRSRO is

counted as having rated a transaction, and the aggregate amount of securities issued, even if the NRSRO rated only a

portion of it.

Based on information about the databases available on the Asset-Backed Alert and Commercial Mortgage Alert websites,

references to “U.S.” CMBS, MBS, ABS, and CLO issuance and market shares in this Section IV.A.2 reflect securities

issued for sale primarily in the U.S., which include securities issued publicly and those issued under Rule 144A under the

Securities Act of 1933 (the Securities Act).

Based on information about the database available on the Commercial Mortgage Alert website, the “CMBS” category

is comprised of transactions secured by a static pool of mortgages or leases on income producing properties, either

commercial or multi-family.

The term “conduit” refers to a financial intermediary that functions as a link, or conduit, between the lender(s) originating

loans and the ultimate investor(s). The conduit makes loans or purchases loans from third party correspondents under

standardized underwriting parameters and once sufficient volume has accumulated, pools the loans for sale to investors

in the CMBS market. See https://www.crefc.org/uploadedFiles/Site_Framework/Industry_Resources/Glossary%20

Revised%202014%20-Update.pdf. In contrast, a single-borrower transaction includes commercial mortgage loans made

to a single borrower.

S TA F F R E P O R T

that account for most of the non-agency52 U.S.

CMBS transactions rated by NRSROs. The charts

include reported market share information for total

non-agency U.S. CMBS transactions,53 U.S. conduit

CMBS transactions, U.S. single-borrower CMBS

transactions, and agency CMBS transactions54 for

the first half of calendar year 2022 and calendar

years 2021 and 2020.55

Chart 13. Rating Agency Market Shares for Total Non-Agency U.S. CMBS Issued in 2020, 2021, and

First Half of 2022

NRSRO

1H-2022

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2021

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2020

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

Moody’s

34,989

71.0/63.6

38,342

34.7/31.7

25,076

46.3/50.0

Fitch

23,485

47.7/41.8

57,361

51.9/42.3

38,037

70.2/54.8

DBRS

23,197

47.1/41.8

56,655

51.2/50.0

21,893

40.4/40.5

KBRA

16,614

33.7/29.1

46,466

42.0/33.1

25,825

47.7/38.1

S&P

11,485

23.3/25.5

45,885

41.5/38.7

18,176

33.6/27.4

49,266

110,557

142

54,155

1H-2022

Rank

Total Rated Market

Chart 14. Rating Agency Market Shares for U.S. Conduit CMBS Issued in 2020, 2021, and First Half of 2022

NRSRO

1H-2022

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2021

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2020

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

Fitch

16,105

100.0/100.0

31,428

100.0/100.0

26,953

100.0/100.0

KBRA

10,124

62.9/62.5

25,809

82.1/81.3

17,400

64.6/66.7

Moody’s

8,258

51.3/50.0

6,771

21.5/21.9

11,457

42.5/50.0

DBRS

8,135

50.5/50.0

6,984

22.2/21.9

9,553

35.4/33.3

S&P

7,358

45.7/43.8

22,906

72.9/68.8

14,769

54.8/46.7

16,105

31,428

26,953

1H-2022

Rank

Total Rated Market

“Non-agency” CMBS refers to CMBS that are not issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae.

“Agency” CMBS generally refers to CMBS that are issued or guaranteed by such entities.

Total U.S. CMBS transactions include single-borrower CMBS, conduit CMBS, and other types of CMBS, such as large

loan and small-balance/legacy conduit CMBS transactions.

Only agency CMBS transactions with a rating from one or more NRSROs are included for determining NRSRO market

share in the agency CMBS category.

The market share percentage for each NRSRO in Charts 13 through 16 reflects the total amount rated by the NRSRO as

a percentage of the total amount rated by all the NRSROs that assigned ratings. Market share percentages are provided

based on both dollar amounts of issuance and number of deals rated. The sum of the market share percentages exceeds

100% because it is typical for more than one NRSRO to rate a particular transaction. Likewise, the aggregate issuance

volume and number of deals represented above exceed the Total Rated Market values for each time period. The source of

the data for these charts is the Commercial Mortgage Alert’s CMBS database as of August 5, 2022.

O F F I C E O F C R E D I T R AT I N G S

Chart 15. Rating Agency Market Shares for U.S. Single-Borrower CMBS Issued in 2020, 2021, and

First Half of 2022

NRSRO

1H-2022

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2021

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2020

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

Moody’s

26,454

80.4/68.4

31,571

39.9/34.5

11,388

47.9/48.9

DBRS

15,062

45.8/39.5

49,671

62.8/58.2

10,108

42.5/42.6

Fitch

7,379

22.4/18.4

25,933

32.8/25.5

8,582

36.1/25.5

KBRA

6,213

18.9/13.2

20,657

26.1/19.1

7,231

30.4/19.1

S&P

4,127

12.6/18.4

22,979

29.9/30.0

3,154

13.3/17.0

32,884

79,128

110

23,776

1H-2022

Rank

Total Rated Market

Chart 16. Rating Agency Market Shares for Agency CMBS Issued in 2020, 2021, and First Half of 2022

NRSRO

1H-2022

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2021

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2020

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

Fitch

9,484

60.4/61.5

22,469

94.9/95.0

26,820

90.9/91.3

KBRA

8,406

53.6/53.8

7,538

31.8/35.0

14,480

49.1/47.8

DBRS

7,286

46.4/46.2

16,147

68.2/65.0

15,011

50.9/52.2

Moody’s

6,208

39.6/38.5

1,216

5.1/5.0

2,671

9.1/8.7

Total Rated Market

15,692

23,684

29,491

1H-2022

Rank

Charts 13 through 16 show that in 2020, 2021,

and the first half of 2022 the large NRSROs

generally held a large percentage of the market

shares in rating non-agency U.S. CMBS transactions, but DBRS and KBRA have achieved significant market shares as well.

As illustrated in Chart 13, in the first half of 2022,

DBRS and KBRA had the third- and fourth-highest

market shares, respectively, in the non-agency

U.S. CMBS segment. In 2021, DBRS was closely

behind Fitch for the second-highest market share,

significantly increasing its market share since 2020.

KBRA has consistently attained a market share

over 34% since 2020, and in 2021 KBRA obtained

a higher market share than Moody’s or S&P.

As of the first half of 2022, the U.S. conduit

CMBS segment represented approximately 30%

of the non-agency U.S. CMBS transactions. Since

2020, Fitch has maintained the highest market

share in the U.S. conduit CMBS segment, rating

all transactions. However, as illustrated in Chart

14, KBRA has maintained the second-highest

market share, measured by both dollar value of

issuance and number of deals rated, in the U.S.

conduit CMBS segment since 2020. Additionally,

as of the first half of 2022, DBRS has rated just

over half of these transactions.

In 2021 and the first half of 2022, the relative size

of the U.S. single-borrower segment was approximately two-thirds of all non-agency U.S. CMBS

S TA F F R E P O R T

transactions. As illustrated in Chart 15, DBRS has

achieved significant market share in this segment,

achieving the highest market share in 2021 and

the second-highest for 2020 and the first

half of 2022.

As illustrated in Chart 16, Fitch had the highest

market share in the agency CMBS segment

during 2020 and 2021. However, over the same

period, DBRS and KBRA had the second and

third highest market shares, respectively, and

KBRA and DBRS had the second and third

highest market shares, respectively, for the first

half of 2022.

b. ABS/MBS/CLO

Charts 17 through 19 provide information

concerning U.S. ABS,56 U.S. MBS,57 and U.S.

CLO58 ratings by NRSROs, based on information

from the Asset-Backed Alert database. The charts

include reported market share information for

these transactions for the first half of calendar

year 2022 and calendar years 2021 and 2020.59

Chart 17 shows that DBRS and KBRA have gained

and maintained significant U.S. ABS rating market

shares. Since 2020, KBRA has grown its market

share, and DBRS has consistently attained a market

share of over 20%.

Chart 17. Rating Agency Market Shares for U.S. ABS Issued in 2020, 2021, and First Half of 2022

NRSRO

1H-2022

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2021

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2020

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

S&P

111,577

142

52.0/39.0

192,962

291

49.2/43.0

159,660

240

58.3/47.9

Moody’s

87,172

112

40.7/30.8

171,700

199

43.7/29.4

114,382

157

41.8/31.3

Fitch

79,980

115

37.3/31.6

135,558

177

34.5/26.1

109,286

151

39.9/30.1

KBRA

73,697

155

34.4/42.6

101,188

252

25.8/37.2

50,550

139

18.5/27.7

DBRS

43,541

20.3/27.2

123,106

233

31.4/34.4

76,125

168

27.8/33.5

Total Rated Market

214,373

364

392,476

677

273,685

501

1H-2022

Rank

Based on information about the database available on the Asset-Backed Alert website, the “ABS” category is comprised

of securities that are collateralized by assets other than the following: CMBS; MBS; CLOs; collateral debt obligations

collateralized primarily by other securities; issuances by municipalities; tax exempt issues; issues that are fully retained by

an affiliate of the deal sponsor or sold to a commercial paper-conduit operated by an affiliate of the sponsor; commercial

paper and other continuously offered securities such as medium-term notes; and refinancing of previously offered

securities.

Based on information about the database available on the Asset-Backed Alert website, the “MBS” category is comprised of

registered securities backed by U.S. first-lien residential properties (typically jumbo mortgages that would otherwise meet

the criteria of Fannie Mae and Freddie Mac) and Alt-A home loans.

Based on information about the database available on the Asset-Backed Alert website, the “CLO” category is comprised

of deals that take the form of collateralized loan obligations (exclusive of collateralized debt obligations collateralized

primarily by other securities). In the period reviewed, these consisted of deals involving corporate loan arbitrage, small

business/SME loans, and commercial real estate loans.

The market share percentage for each NRSRO in Charts 17 through 19 reflects the total amount rated by the NRSRO as

a percentage of the total amount rated by all the NRSROs that assigned ratings. Market share percentages are provided

based on both dollar amounts of issuance and number of deals rated. The sum of the market share percentages exceeds

100% because it is typical for more than one NRSRO to rate a particular transaction. Likewise, the aggregate issuance

volume and number of deals represented above exceed the Total Rated Market values for each time period. The source of

the data for these charts is the Asset-Backed Alert’s ABS database as of August 5, 2022.

O F F I C E O F C R E D I T R AT I N G S

Chart 18. Rating Agency Market Shares for U.S. MBS Issued in 2020, 2021, and First Half of 2022

1H-2022

Rank

NRSRO

1H-2022

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2021

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2020

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

KBRA

23,065

75.9/69.5

41,100

47.5/47.8

10,311

34.5/30.4

Moody’s

21,449

70.5/66.1

62,825

112

72.5/62.2

14,642

49.0/39.2

Fitch

15,488

50.9/45.8

32,996

38.1/41.7

14,755

49.4/58.2

DBRS

3,177

10.4/10.2

19,609

22.6/18.3

10,810

36.2/30.4

S&P

1,699

5.6/6.8

6,130

7.1/8.3

2,491

8.3/8.9

30,407

86,599

180

29,883

Total Rated Market

DBRS and KBRA have been able to gain market

share in rating more traditional types of ABS. For

example, in 2021 and the first half of 2022, DBRS

rated 90.2% and 92.2% of transactions backed

by student loans, which represented the highest

market share. Likewise, in 2021 and the first half

of 2022, KBRA rated 78.7% and 85% of transactions backed by small business loans, which

represented the highest market share.60

Both DBRS and KBRA have maintained a significant market share in certain auto-related assetbacked securities. In 2021, DBRS rated 47.6%

of the auto-fleet lease transactions, 33.1% of the

subprime auto loan transactions, and 17.8% of

the auto lease transactions. KBRA also maintained

a significant market share in the subprime auto

loan transactions, rating 35.1% of such transactions during 2021. This has largely continued

into the first half of 2022, as DBRS rated 6.9%

of the auto-fleet lease transactions, 31.7% of

the subprime auto loan transactions, and 11.1%

of the auto lease transactions, and KBRA rated

42.7% of the subprime auto loan transactions.61

Chart 18 shows that the U.S. MBS segment

remains competitive. KBRA’s market share has

increased from 34.5% in 2020 to 75.9% in the

first half of 2022, although DBRS’ market share

has decreased from 36.2% in 2020 to 10.4% in

the first half of 2022. DBRS and KBRA have,

however, achieved notable market share in certain

types of ABS related to the residential housing

market, but not considered to be MBS under

the Asset-Backed Alert database’s criteria. For

example, DBRS rated 76.9% of the re-performing

mortgage transactions that priced in the first

half of 2022. Additionally, KBRA and DBRS

were active rating securities backed by subprime

mortgages and risk transfer securities during

the first half of 2022. For securities backed by

subprime mortgages, KBRA rated 60.4% and

DBRS rated 19.6% that priced during the first

half of 2022; for risk transfer securities, KBRA

Asset-Backed Alert’s ABS database indicates that 50 student loan transactions totaling $32.3 billion and eight smallbusiness loan transactions totaling $1.2 billion were priced during 2021. Eight student loan transactions totaling $5.6

billion and eight small-business loan transactions totaling $1.8 billion were priced during the first half of 2022.

Asset-Backed Alert’s ABS database indicates that the following transactions were priced during 2021: 13 auto-fleet

lease transactions totaling $10.5 billion, 68 subprime auto loan transactions totaling $43.5 billion, and five auto lease

transactions totaling $3.3 billion. The following transactions were priced during the first half of 2022: 15 auto-fleet lease

transactions totaling $7.1 billion, 37 subprime auto loan transactions totaling $20.7 billion, and 18 auto lease transactions

totaling $16.4 billion

S TA F F R E P O R T

Chart 19. Rating Agency Market Shares for U.S. CLOs Issued in 2020, 2021, and First Half of 2022

NRSRO

1H-2022

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2021

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2020

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

Moody’s

49,994

104

66.7/64.2

93,606

192

48.2/48.9

18,890

20.1/20.1

Fitch

35,416

47.3/44.4

39,195

20.2/19.3

32,815

35.0/32.1

S&P

28,877

38.5/38.3

101,931

207

52.5/52.7

81,589

193

87.0/86.2

KBRA

2,364

3.2/4.3

12,979

6.7/6.4

3,541

3.8/4.5

DBRS

151

0.2/1.9

3,227

1.7/1.0

330

0.4/0.4

74,953

162

194,333

393

93,785

224

1H-2022

Rank

Total Rated Market

rated 78.2% and DBRS rated 21.8% that priced

during the first half of 2022.62

As shown in Chart 19, DBRS and KBRA have

attained a foothold in the U.S. CLO segment,

although S&P, Moody’s, and Fitch have had the

highest market shares since 2020.

In addition to the more traditional categories of

asset-backed securities classes discussed above,

DBRS and KBRA have gained significant market

share in some newer or more esoteric classes of

asset-backed securities. For example, DBRS and

KBRA are significant raters of securities backed

by unsecured consumer loans, including consumer

loans originated through marketplace lending

platforms. DBRS and KBRA had the two highest

market shares in this category in 2021 and the

first half of 2022, both rating over 44% of the

transactions priced during this period. Comparatively, Moody’s, S&P, and Fitch each rated less

than 30% of these transactions over the same time

period.63

There are additional examples of market share

gains achieved by a medium NRSRO in discrete

asset classes. For instance, KBRA rated 85.0% and

100% of the aircraft-lease receivables transactions

that priced during 2021 and the first half of 2022,

respectively, while Moody’s, S&P, and Fitch each

rated less than 55% of these transactions over the

same time period.64 KBRA was also active rating

whole-business securitizations during 2021 and the

first half of 2022, rating 60.2% and 90.5%, respectively, of the issuance amount of such transactions.

While S&P had a greater market share for 2021

(rating 75% of the transactions), KBRA had the

highest market share for the first half of 2022.65

Asset-Backed Alert’s ABS database indicates that 15 re-performing mortgage transactions totaling $7.6 billion, 61

subprime mortgage transactions totaling $24.1 billion, and 15 risk transfer transactions totaling $18.3 billion were priced

during the first half of 2022.

Asset-Backed Alert’s ABS database indicates that 73 unsecured consumer loan transactions totaling $26.8 billion were

priced during 2021, and 44 unsecured consumer loan transactions totaling $13.2 billion were priced during the first half of

2022.

Asset-Backed Alert’s ABS database indicates that 16 aircraft-lease receivable transactions totaling $9.1 billion were priced

during 2021, and two aircraft-lease receivable transactions totaling $1.1 billion were priced during the first half of 2022.

Asset-Backed Alert’s ABS database indicates that 19 whole-business securitization transactions totaling $13.9 billion were

priced during 2021, and 11 whole business securitization transactions totaling $5.2 billion were priced during the first half

of 2022.

O F F I C E O F C R E D I T R AT I N G S

3. Barriers to Entry

Barriers to entry continue to exist in the credit

ratings industry, presenting competitive challenges

for the small and medium NRSROs.

One such potential barrier that has been raised

by certain small and medium NRSROs are

the investment management contracts of some

institutional fund managers and the investment

guidelines of some fixed income mutual fund

managers, pension plan sponsors, and endowment

fund managers, which require the use of ratings

of specified rating agencies.66 The effect of these

requirements can be to increase the demand for

and liquidity of securities bearing the ratings of

specified rating agencies, which may provide an

incentive for issuers to obtain ratings from the

specified agencies. Historically, many of these

guidelines refer to the ratings from the large

NRSROs by name (i.e., Fitch, Moody’s, and

S&P). Despite reports that investors are increasingly changing their guidelines to allow for

investments in securities rated by a wider group

of NRSROs,67 investment guidelines continue to

be identified as a factor impacting the selection of

NRSROs to rate certain transactions.68

A related barrier to entry is the inclusion requirements of some fixed income indices. To be

included in certain of these indices, securities must

be rated by specified NRSROs. Certain investment

companies try to closely track the performance of

the indices by purchasing the securities included in

them (“index funds”). Index funds have grown as

a share of the fund market, and they can increase

the demand for securities bearing the ratings

of particular NRSROs.69 For instance, Fitch

announced that its ratings had been added to the

J.P. Morgan High-Yield Bond Indices, noting that

investors rely on such indices to determine which

bonds suit their level of credit risk.70

Market participants and academics have identified

various other barriers to entry in the credit rating

industry, including economic and regulatory

barriers.71 For instance, when the Commission

See Statement of Jim Nadler, President and CEO, Kroll Bond Rating Agency, Bond Rating Agencies: Examining the

“Nationally Recognized” Statistical Rating Organizations Hearing Before the Subcommittee on Investor Protection,

Entrepreneurship and Capital Markets of the House Committee on Financial Services, 117th Congress (July 21, 2021),

available at https://democrats-financialservices.house.gov/UploadedFiles/HHRG-117-BA16-Wstate-NadlerJ-20210721.

pdf; see also Letter from KBRA to the Commission (Aug. 19, 2014), available at https://www.sec.gov/comments/s7-18-11/

s71811-88.pdf.

See, e.g., Big Investors Accept More Rating Agencies, Asset-Backed Alert, May 19, 2017.

See S&P Vaults Past Moody’s in Conduit Sector, Commercial Mortgage Alert, Jan. 24, 2020; S&P, Moody’s Duke It Out in

Fitch’s Shadow, Commercial Mortgage Alert, Jan. 25, 2019.

See, e.g., Rating Firms Seek Changes to Index, Asset-Backed Alert, May 26, 2017; see also Investment Company Institute,

2022 Investment Company Fact Book (2022), at 29, available at https://www.icifactbook.org/ (index funds made up 21%

of assets in long-term funds at the end of 2011 and 43% at the end of 2021).

See Fitch Ratings Joins J.P. Morgan High Yield Bond Indices, Fitch Ratings, June 28, 2017. In a related example,

DBRS announced that its ratings would be included in the determination of index credit quality classifications for

CAD-denominated securities in the Bloomberg Barclays Canada Aggregate Index and the Global Aggregate Index,

resulting in approximately 49 securities being added to the Canadian Aggregate Index. See DBRS Bond Ratings to Be

Included in the Bloomberg Barclays Canada Aggregate Index, DBRS, Inc., Apr. 19, 2018.

See, e.g., Section IV.C of the March 2012 Annual Report, available at https://www.sec.gov/divisions/marketreg/

ratingagency/nrsroannrep0312.pdf. As discussed in the March 2012 Report, economic barriers to entry include issuers and

market participants favoring well-established NRSROs due to their reputation, and economies of scale which may allow

larger NRSROs to offer advantageous services or pricing. Academic literature continues to identify these as barriers to

entry. See, e.g., Sangiorgi, F. and Spatt, C., The Economics of Credit Rating Agencies, Foundations and Trends in Finance,

12, 1-116 (2017), available at https://ssrn.com/abstract=3055889.

S TA F F R E P O R T

proposed new rules and rule amendments in

accordance with the Dodd-Frank Act (the

NRSRO Amendments), commenters expressed

concerns that certain of the proposed requirements would be burdensome for small NRSROs

to implement and could raise barriers to entry

for credit rating agencies to seek to register as

NRSROs.72 In connection with the adoption of the

NRSRO Amendments, the Commission acknowledged that, despite efforts to limit the impact on

small entities, the Dodd-Frank Act contained

requirements, including those implemented by

the NRSRO Amendments, which impose costs on

NRSROs and may consequently create barriers to

entry and have negative impacts on competition.73

At the same time, the Commission recognized

substantial benefits associated with the NRSRO

Amendments implementing Title IX, Subtitle

C of the Dodd-Frank Act, which was designed

to address the causes of certain market failures

that may impair the integrity and transparency

of NRSRO credit ratings.74 For instance, certain

provisions of the NRSRO Amendments were

designed primarily to enhance the integrity

of how NRSROs determine credit ratings by

improving internal governance of NRSROs,

managing potential principal-agent problems and

conflicts of interest in the credit rating process,

and promoting adherence to the procedures and

methodologies for determining credit ratings.75

Other provisions of the NRSRO Amendments

were designed mainly to enhance the transparency

of NRSRO credit ratings by increasing disclosure

and reducing information asymmetries that may

adversely affect users of credit ratings.76

The NRSRO Amendments as adopted by the

Commission include various changes from the

proposed amendments intended to address

concerns regarding barriers to entry, including

standards allowing NRSROs to tailor particular

requirements to their business models, size, and

rating methodologies.77

Additionally, there are provisions for exemptions

built into several rules and statutory provisions,

if the Commission deems that these requirements may impose an unreasonable burden on

the NRSRO. NRSROs may also request exemptions under Section 36 to rules or Exchange Act

provisions.78

See 2014 Adopting Release, 79 FR 55078 (Sept. 15, 2014) at 55090, 55154, 55161, and 55254-55, available at https://

www.govinfo.gov/content/pkg/FR-2014-09-15/pdf/2014-20890.pdf, see also comment letters received with respect to the

NRSRO Amendments as proposed, available at https://www.sec.gov/comments/s7-18-11/s71811.shtml.

See 2014 Adopting Release, 79 FR at 55254.

See id. at 55091; see also Section 931 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No.

111-203, 124 Stat. 1376, H.R. 4173 (July 21, 2010) (articulating the findings of Congress, including that the activities and

performance of credit rating agencies are matters of national public interest and that certain market failures necessitate

increased accountability on the part of credit rating agencies).

See 2014 Adopting Release, 79 FR at 55091.

See id.

See Section IV.C of the December 2015 Annual Report, available at https://www.sec.gov/ocr/reportspubs/annualreports/2015-annual-report-on-nrsros.pdf.

For example, KBRA was granted a temporary conditional exemption from Rule 17g-5(c)(1), which prohibits an NRSRO

from issuing or maintaining a credit rating solicited by a person that, in the most recently ended fiscal year, provided the

NRSRO with net revenue equaling or exceeding 10% of the total net revenue of the NRSRO for the fiscal year. In another

example, the Commission granted JCR a temporary conditional exemption from certain requirements of Section 15E(t),

which include provisions regarding the composition and duties of the supervisory board of an NRSRO. The Commission’s

orders granting exemption requests can be found under “Exemption Orders” in the “Commission Orders” section of the

OCR webpage, available at https://www.sec.gov/ocr/ocr-commission-orders.html.

O F F I C E O F C R E D I T R AT I N G S

B. TRANSPARENCY

Congress described the Rating Agency Act as an

act to improve ratings quality for the protection of

investors and in the public interest “by fostering

accountability, transparency, and competition in

the credit rating agency industry.”79 Section 932

of the Dodd-Frank Act is entitled “Enhanced

regulation, accountability, and transparency of

NRSROs.” Both acts contain various provisions

designed to increase the transparency—through

clear disclosure open to public scrutiny—of, among

other things, NRSROs’ credit rating procedures

and methodologies, business practices, and credit

ratings performance.

Under Exchange Act rules, NRSROs are required

to disclose:

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Standardized performance statistics;80

Consolidated information about credit rating

histories;81

Information about material changes and

significant errors in the procedures and

methodologies used to determine credit

ratings;82

Information about specific rating actions;83 and

Clear definitions of each symbol, number, or

score in the rating scale used by the NRSRO.84

NRSROs must also disclose certain information in

connection with each rating action.85 Such infor79

mation includes, among other things, the version of

the procedure or methodology used to determine

the credit rating, a description of the types of data

that were relied upon for purposes of determining

the credit rating, an assessment of the quality of

information available and considered in determining the credit rating, and information on the

sensitivity of the credit ratings to assumptions made

by the NRSRO.86

In addition to or in connection with required

disclosures, NRSROs often issue press releases

and reports at the time of a rating action to

describe the rationale behind such rating action,

and make versions of methodologies for determining credit ratings available on their websites.87

The availability of underlying methodologies,

together with a report discussing the analysis

supporting the rating action, may provide

additional transparency into an NRSRO’s credit

analysis and credit rating process.

From time-to-time, NRSROs also publish revisions

and updates to their methodologies. They may

also at times publish revisions to the assumptions

that are inputs to their methodologies and rating

approaches, including changes to their economic

outlooks or default rate assumptions. Revised

methodologies and related assumptions may

provide additional transparency into changes in the

NRSROs’ credit views and analyses.88

See the preamble to the Rating Agency Act.

See Instructions for Exhibit 1 to Form NRSRO.

See Rule 17g-7(b).

See Rule 17g-8(a)(4).

See Rule 17g-7(a).

See Rule 17g-8(b)(2).

See Rule 17g-7(a).

See Rule 17g-7(a)(1)(ii).

The reports accompanying a rating action are frequently available on a paid subscription basis, although some NRSROs

provide access to such reports for free.

Further transparency may be realized if NRSROs seek public comment for proposed new or changed methodologies. Rule

17g-8(d)(1)(ii) provides that NRSROs must consider implementing controls reasonably designed to ensure that new or

updated methodologies are disclosed to the public for consultation prior to their being employed.

S TA F F R E P O R T

NRSROs may also provide transparency to the

extent they publish commentaries or research.

NRSROs publish commentaries and research

that generally include data, analyses, or projections on market sectors and economic outlooks.89

These publications may be helpful to investors

to understand industry trends and the NRSROs’

credit views.

For example, following Russia’s invasion of

Ukraine, NRSROs began publishing commentaries

and research that provide their perspectives on the

potential credit and rating impacts of the conflict

on issuers and debt obligations in different market

sectors. They also began publishing Russia-Ukraine

conflict-related commentaries on economic and

market trends. KBRA published a report that said

an estimated 3.7 million Ukrainian refugees from

the Russia-Ukraine conflict are likely to settle more

permanently in host countries and that Poland’s

spending on refugees has amounted to about 1%

of its GDP through June 2022.90 A DBRS report

expressed the view that despite the negative impact

on many existing transactions secured by affected

aircraft, it believes the nationalization of aircraft

by Russia will not have a material impact on the

issuance of future transactions because of the rarity

of such events.91

NRSROs have also continued to produce

research in recent years regarding their views

on ESG matters and how they incorporate ESG

considerations in their credit rating actions. For

example, AMB published research presenting

its view that secondary perils, such as wildfires,

tornados, and severe thunderstorms, are

accounting for a larger share of losses from

catastrophe events than primary perils, such as

hurricanes and floods, and that the heightened

number of significant storms and weather events

is an indication that climate change is having a

more drastic and far-reaching effect on global

weather events.92 KBRA wrote in its research that

demand for electric vehicles will reduce gasoline

taxes and related revenues and could pressure

municipal bond issues that rely on them.93

A number of the Staff’s findings and recommendations in connection with the 2022 Section 15E

examinations related to transparency issues. These

findings included disclosure and reporting issues

implicating Rule 17g-3, Rule 17g-7(a), and Form

NRSRO. A description of these findings can be

found in Section III.D.3 of this report.

C. CONFLICTS OF INTEREST

NRSROs operate under one or more business

models, each having conflicts of interest. The

primary business model of the NRSROs is the

“issuer-pay” model, which is subject to a conflict

in that the credit rating agency may be influenced

to determine more favorable (i.e., higher) ratings

than warranted in order to retain the obligors or

issuers as clients. Another business model is the

NRSROs may also make market and economic data separately available.

See KBRA, Ukraine Refugee Crisis and Host Nation Fiscal Impacts (Aug 23, 2022), available at https://www.kbra.com/

documents/report/70214/esg-ukraine-refugee-crisis-and-host-nation-fiscal-impacts.

See DBRS, Secured Aviation Transactions: Jurisdictional Analysis, Political Risks, and Russian Aircraft Nationalization

Implications (Aug 18, 2022), available at https://www.dbrsmorningstar.com/research/401563/secured-aviationtransactions-jurisdictional-analysis-political-risks-and-russian-aircraft-nationalization-implications.

See A.M. Best, Secondary Perils Increasingly Responsible for Largest US Catastrophes (Jan 14, 2022),

available at https://www3.ambest.com/ambv/sales/bwpurchase.aspx?altsrc=108&record_code=316561&_

ga=2.34478628.405875056.1663286055-1130994754.1614722857.

See KBRA, EVs’ Popularity Could Diminish State Gasoline Taxes for Transportation Funds (Jul 18, 2022), available at

https://www.kbra.com/documents/report/68864/ev-s-popularity-could-diminish-state-gasoline-taxes-for-transportationfunds.

O F F I C E O F C R E D I T R AT I N G S

“subscriber-pay” model, under which investors pay

a subscription fee to access an NRSRO’s ratings.

This model is also subject to conflicts of interests.

For example, an NRSRO may be aware that an

influential subscriber holds a securities position

(long or short) that could be advantaged if a credit

rating upgrade or downgrade causes the market

value of the security to increase or decrease or that

a subscriber investing in newly issued bonds and

may obtain higher yields if the bonds were to have

lower ratings.

In addition to being paid by issuers and

subscribers, some NRSROs are paid to determine

ratings by investors. Frequently these engagements

contemplate the issuance of the credit rating on a

private basis. In these cases, the NRSRO provides

the credit rating directly to its client but does not

publish (or make available to all its subscribers)

the credit rating or a report detailing its credit

analysis (although such a report may be provided

to the client with the rating). This business

model is subject to conflicts of interest, which

are dependent on the objectives of the client for

obtaining the rating.

Section 15E and the related Commission rules

address conflicts of interest.94 For example, Rule

17g-5 identifies certain conflicts of interest that

are prohibited under all circumstances95 and other

conflicts of interest that are prohibited unless an

NRSRO has publicly disclosed the existence of the

conflict and has implemented policies and procedures reasonably designed to address and manage

such conflict.96

Among the conflicts of interest identified in Rule

17g-5 are conflicts involving individual credit

analysts or other employees of an NRSRO. For

example, an NRSRO is prohibited from issuing or

maintaining a credit rating where an employee of

the NRSRO that participated in determining, or is

responsible for approving, the credit rating directly

owns securities of, or is an officer or director of, the

person that would be subject to the credit rating.97

Rule 17g-5(c)(8) is another example of a prohibited

conflict of interest involving persons within an

NRSRO. Under the Rule, an NRSRO is prohibited

from issuing or maintaining a credit rating where

a person within the NRSRO who participates in

determining or monitoring the rating, or developing

or approving procedures or methodologies used

for determining the rating, also (i) participates in

sales or marketing activities of the NRSRO or its

affiliate, or (ii) is influenced by sales or marketing

considerations.98 In June 2022, the Commission

instituted settled administrative and cease-anddesist proceedings against EJR and its founder

and chief executive officer, Sean Egan, for, among

other things, issuing or maintaining credit ratings

where EJR employees, including Mr. Egan, who

participated in determining the credit ratings also

participated in the sales and marketing of a product

or service of EJR and were also influenced by sales

or marketing considerations in violation of Rule

17g-5(c)(8).99 In addition, in November 2022,

the Commission instituted settled administrative

and cease-and-desist proceedings against S&P

for issuing and maintaining credit ratings where

commercial employees, who participated in sales

See, e.g., Section 15E(h) and Rule 17g-5.

See Rule 17g-5(c).

See Rule 17g-5(a)(1)-(2) and Rule 17g-5(b); Instructions for Exhibits 6 and 7 to Form NRSRO. In addition, Section 15E(t)

(3)(B) requires an NRSRO’s board of directors to oversee the establishment, maintenance, and enforcement of policies and

procedures to address, manage, and disclose any conflicts of interest.

See Rule 17g-5(c)(2) and Rule 17g-5(c)(4).

See Rule 17g-5(c)(8).

Available at https://www.sec.gov/litigation/admin/2022/34-95127.pdf.

S TA F F R E P O R T

and marketing activity and were influenced by sales

and marketing considerations, also participated in

the determination of credit ratings in violation of

Rule 17g-5(c)(8) by engaging in numerous communications with analytical staff.100

Other statutory provisions and Commission rules

address conflicts of interest that may arise when

a credit analyst seeks employment outside the

NRSRO. Section 15E requires each NRSRO to

have policies and procedures in place to provide

for an internal “look-back” review process in

order to determine whether any conflict of interest

of a former employee influenced a credit rating

in certain instances.101 Rule 17g-8(c) requires

an NRSRO’s policies and procedures to address

instances in which a “look-back” review deter-

mined that a conflict of interest influenced a credit

rating. Such policies and procedures are required to

be reasonably designed to ensure that the NRSRO

will promptly determine whether a credit rating

must be revised and promptly publish a revised

credit rating or an affirmation of the credit rating,

along with certain disclosures about the existence

of the conflict.102

Several of the Staff’s findings and recommendations in connection with the 2022 Section 15E

examinations related to conflict of interest issues.

Among other things, these findings addressed

apparent issues with policies and procedures

to address and manage conflicts of interest. A

description of these findings can be found in

Section III.D.3 of this report.

100 See In re S&P Global Ratings, Exch. Act Rel. No. 96308 (Nov. 14, 2022), available at https://www.sec.gov/litigation/

admin/2022/34-96308.pdf.

101 See Section 15E(h)(4)(A).

102 See Rule 17g-8(c).

O F F I C E O F C R E D I T R AT I N G S

V. ACTIVITIES RELATING TO NRSROs

A. COMMISSION ORDERS AND

RELEASES

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he Commission issued the following

orders and releases relating to NRSROs

or credit ratings in general in calendar

year 2022:

In re S&P Global Ratings, Exch. Act Rel. No.

96308 (Nov. 14, 2022).103 The Commission

instituted settled administrative and cease-anddesist proceedings against S&P concerning

violations of Section 15E(h)(1) and Rules

17g-5(c)(8)(i) and (ii). The violations were in

connection with S&P commercial employees

communicating with analytical staff and thereby

becoming participants in the rating process for

purposes of Rule 17g-5(c)(8). The SEC’s order

also finds that S&P failed to establish, maintain,

and enforce written policies and procedures

designed to ensure compliance with Rules

17g-5(c)(8)(i) and (ii).

Order Granting Registration of Demotech,

Inc. as a Nationally Recognized Statistical

Rating Organization, SEC Rel. No. 34-95243

(July 11, 2022).104 The Commission granted

the registration of Demotech, Inc. with the

Commission as a nationally recognized

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statistical rating organization under Section

15E for the insurance companies class of

credit ratings.

In re Egan-Jones Ratings Company and Sean

Egan, Exch. Act Rel. No. 95127 (June 21,

2022).105 The Commission instituted settled

administrative and cease-and-desist proceedings

against EJR and Sean Egan concerning EJR’s

violations of Sections 15E(h)(1) and 15E(f)(2)

and Rules 17g-5(c)(8)(i) and (ii) and 17g-5(c)

(1) and Egan’s causing the Rule 17g-5(c)(8)

(i) and (ii) violations. The violations were in

connection with failures to separate sales and

marketing activities and considerations from

the determination of credit ratings, the issuance

and maintenance of credit ratings solicited by

a person that, in the most recently ended fiscal

year, provided the NRSRO with net revenue

equaling or exceeding ten percent of the total

net revenue of the NRSRO for the fiscal year,

and the issuance and maintenance of ratings in

certain classes of securities without prominently

disclosing that such ratings were not issued or

maintained by an NRSRO that was registered to

issue ratings in such classes.

Removal of References to Credit Ratings From

Regulation M, Release No. 34-94499 (Mar. 23,

103 Available at https://www.sec.gov/litigation/admin/2022/34-96308.pdf.

104 Available at https://www.sec.gov/rules/other/2022/34-95243.pdf.

105 Available at https://www.sec.gov/litigation/admin/2022/34-95127.pdf.

S TA F F R E P O R T

2022), 87 FR 18312 (Mar. 30, 2022).106 The

Commission re-proposed amendments to

remove the references to credit ratings included

in Rules 101 and 102 of Regulation M.

C. STAFF PUBLICATION

The Staff issued the following publication relating

to NRSROs or credit ratings in general in calendar

year 2022:

B. COURT JUDGMENT

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The following judgment relating to litigation

brought against a former NRSRO by the

Commission was entered in calendar year 2022:

■

Securities and Exchange Commission v.

Morningstar Credit Ratings, No. 1:21-cv-1359

(S.D.N.Y. June 7, 2022).107 The U.S. District

Court for the Southern District of New York

entered a final judgment against MCR. The

Commission’s complaint alleged that MCR

violated certain disclosure and internal control

provisions of Section 15E and certain related

rules. MCR consented to the entry of the

final judgment, which ordered it to pay a civil

money penalty.

Staff Report on Nationally Recognized

Statistical Rating Organizations, dated January

2022 (the 2021 Staff Report), as required

by Section 6 of the Rating Agency Act and

Section 15E(p)(3)(C).108 The 2021 Staff Report

addresses the matters described in the second

paragraph under Section II of this Report for

the period June 26, 2020 through December 31,

2021, and summarizes the essential findings of

the examinations conducted by the Staff under

Section 15E(p)(3)(C) for the review period

January 1, 2020 to December 31, 2020.

106 Available at https://www.federalregister.gov/documents/2022/03/30/2022-06583/removal-of-references-to-credit-ratingsfrom-regulation-m.

107 Available at https://www.sec.gov/litigation/litreleases/2022/judgment25409.pdf.

108 Available at https://www.sec.gov/files/2022-ocr-staff-report.pdf.

O F F I C E O F C R E D I T R AT I N G S

VI. APPENDIX: SUMMARY OF

STATUTORY FRAMEWORK

AND RULES

ection 15E and Rules 17g-1 through 17g-10

govern the registration and oversight program

for credit rating agencies that are registered

with the Commission as NRSROs. This

regulatory regime was established by the Rating

Agency Act109 and amended by the Dodd-Frank

Wall Street Reform and Consumer Protection Act

(Dodd-Frank Act).110

The Dodd-Frank Act mandated the creation of

the Office of Credit Ratings (OCR), which is

responsible for oversight of credit rating agencies

registered with the Commission as NRSROs.

OCR’s Staff includes professionals with expertise

in a variety of areas that relate to its regulatory

mission, such as corporate, municipal, and structured debt finance.111

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Pursuant to the Commission’s regulatory regime for

NRSROs, an NRSRO is required to, among other

things:

File with the Commission an annual certification

of its Form NRSRO registration,112 promptly

update its filing in certain circumstances,113 and

make its current Form NRSRO filing and most

of its current Form NRSRO Exhibits available

on its public website.114

Disclose certain information, including

information concerning the NRSRO’s

performance measurement statistics and its

procedures and methodologies to determine

ratings.115

Establish, maintain, enforce, and document an

effective internal control structure governing the

implementation of and adherence to policies,

procedures, and methodologies for determining

credit ratings,116 and retain records of its internal

control structure.117

Consider certain factors with respect to its

establishment, maintenance, enforcement, and

documentation of an effective internal control

structure.118

109 Pub. L. No. 109-291, 120 Stat. 1327 (2006).

110 Pub. L. No. 111-203, § 932, 124 Stat. 1376, 1872-83 (2010).

111 See Section 15E(p)(2) for a description of OCR staffing requirements.

112 Section 15E(b)(2) and Rule 17g-1(f).

113 Section 15E(b)(1) and Rule 17g-1(e).

114 Section 15E(a)(3) and Rule 17g-1(i).

115 Section 15E(a)(1)(B)(i) and Section 15E(a)(1)(B)(ii).

116 Section 15E(c)(3)(A).

117 Rule 17g-2(b)(12).

118 See, e.g., Rule 17g-8(d)(1)–(4).

S TA F F R E P O R T

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Establish, maintain, enforce, and document

policies and procedures reasonably designed

to achieve certain objectives concerning its

development and application of, and disclosures

related to, methodologies and models.119

File an unaudited report containing an

assessment by management of the effectiveness

during the fiscal year of the NRSRO’s internal

control structure governing the implementation

of and adherence to policies, procedures,

and methodologies for determining credit

ratings.120 The report must be accompanied

by a signed statement by the NRSRO’s chief

executive officer or an individual performing

similar functions.121

Establish, maintain, enforce, and document

policies and procedures that are reasonably

designed to: assess the probability that an issuer

of a security or money market instrument will

default or fail to make required payments to

investors,122 and ensure that it applies any rating

symbol, number, or score in a manner that is

consistent for all types of obligors, securities,

and money market instruments for which the

symbol, number, or score is used.123

Publish an information disclosure form when

taking a rating action with respect to a rating

assigned to an obligor, security, or moneymarket instrument in a class for which it is

registered as an NRSRO.124 The information

form must disclose certain information with

respect to the particular rating action.125

In addition, the NRSRO must attach to

the information disclosure form a signed

119 See, e.g., Rule 17g-8(a)(2)–(5).

120 Rule 17g-3(a)(7)(i).

121 Rule 17g-3(b)(2).

122 Rule 17g-8(b)(1).

123 Rule 17g-8(b)(3).

124 Rule 17g-7(a).

125 Rule 17g-7(a)(1)(ii)(A)-(N) specifies the information

that must be disclosed in the information disclosure

form.

O F F I C E O F C R E D I T R AT I N G S

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statement by a person within the NRSRO with

responsibility for the rating action.126

Make and retain, or retain, certain records,

including a record documenting its established

procedures and methodologies used to

determine credit ratings127 and records related

to its ratings.128 An NRSRO must promptly

furnish to the Commission or its representatives

copies of required records, including English

translations of those records, upon request.129

Establish, maintain, and enforce written

policies and procedures reasonably

designed to prevent the misuse of material

non-public information (MNPI), including

the inappropriate dissemination of MNPI

both within and outside the NRSRO, the

inappropriate trading of securities using MNPI

by a person within the NRSRO, and the

inappropriate dissemination of pending credit

rating actions within and outside the NRSRO

before issuing the rating on the Internet or

through another readily accessible means.130

Establish, maintain, and enforce written

policies and procedures reasonably designed

to address and manage conflicts of interest.131

Certain conflicts of interest are expressly

prohibited,132 and for other types of conflicts of

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interest, the NRSRO must disclose the conflicts

and have policies and procedures in place to

manage them.133

Refrain from engaging in specified unfair,

coercive, or abusive practices.134

Provide information on whether it has in effect a

code of ethics, and if not, the reasons it does not

have a code of ethics.135

Establish procedures for the receipt, retention,

and treatment of complaints regarding credit

ratings, models, methodologies, and compliance

with the securities laws and its policies and

procedures developed under this regulatory

regime, and of confidential, anonymous

complaints.136

Designate a compliance officer (the DCO)

responsible for administering policies and

procedures related to MNPI and conflicts

of interest, ensuring compliance with the

securities laws and regulations, and establishing

procedures for handling complaints by

employees or users of credit ratings.137 The DCO

must submit an annual report to the NRSRO

on the compliance of the NRSRO with the

securities laws and the NRSRO’s policies and

procedures, and the NRSRO must file the report

with the Commission.138

126 Rule 17g-7(a)(1)(iii).

127 Rule 17g-2(a)(6).

128 The records that an NRSRO must make and retain, or retain, with respect to its ratings include the identity of certain

persons who participated in determining or approving the rating, records used to form the basis of a rating, external and

internal communications received or sent by the NRSRO and its employees related to a rating, and for ABS ratings, a

record of the rationale for any material difference between the final rating assigned and the rating implied by a quantitative

model that was a substantial component in determining the rating. Rule 17g-2(a)(2)(i), (ii), and (iii); Rule 17g-2(b)(2) and

(b)(7).

129 Section 15E(a) and (b) and Rule 17g-2(f).

130 Section 15E(g) and Rule 17g-4.

131 Section 15E(h) and Rule 17g-5. See also Section IV.C of this Report.

132 Rule 17g-5(c). See also Section IV.C of this Report.

133 Rule 17g-5(a)(1) and (a)(2); Rule 17g-5(b).

134 Rule 17g-6.

135 Section 15E(a)(1)(B)(v).

136 Section 15E(j)(3).

137 Section 15E(j)(1) and (3).

138 Section 15E(j)(5).

S TA F F R E P O R T

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Have a board of directors or similar governing

body (collectively, the Board), certain of

whose members must be independent from

the NRSRO.139 An NRSRO’s Board, or

members thereof, are responsible for exercising

oversight of specified subjects related to the

NRSRO’s rating business and for approving

the procedures and methodologies, including

qualitative and quantitative data and models

that the NRSRO uses to determine ratings.140

139 Section 15E(t)(2).

140 Section 15E(t)(3) and Rule 17g-8(a)(1).

141 Rule 17g-9.

142 Section 15E(h)(4) and (5); Rule 17g-8(c).

O F F I C E O F C R E D I T R AT I N G S

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Establish, maintain, enforce, and document

standards of training, experience, and

competence for the individuals it employs to

participate in the determination of credit ratings

that are reasonably designed to achieve the

objective that the NRSRO produces accurate

credit ratings, and retain a record of these

standards.141

Establish policies and procedures regarding

post-employment activities of certain former

personnel.142

WASHINGTON, DC

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.