# U.S. Securities and Exchange Commission

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/agency%3Asec%3Aeb482ba2696bf22b

## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

U.S. Securities and Exchange Commission

Office of Credit Ratings

Staff Report
ON

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.

02

|

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

CONTENTS
CHARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
I.

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

II.

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

III. EXAMINATIONS AND MONITORING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
A. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
B.

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

C.

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

D.

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

V.

B.

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

C.

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

ACTIVITIES RELATING TO NRSROs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
A. Commission Orders and Releases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
B.

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

C.

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

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

S TA F F R E P O R T

|

i

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

ii

|

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

I. INTRODUCTION

T

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
.

1
2
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

|

1

2

|

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

I

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

4
5
6
7

(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

|

3

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

8

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.

9
10

4

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

11

12
13
14

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

|

5

III. EXAMINATIONS AND MONITORING

A. OVERVIEW

I

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):

■

■

15

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

|

7

■

■

■

■
■

■

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

16

8

■

■

■

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

17

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

|

9

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
18

19
20
21

22

10

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;
or
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

|

11

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

12

|

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

|

13

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.

14

|

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

|

15

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

16

|

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:
23
24

■

■

■

■

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

|

17

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

18

|

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

S

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

25

26

■

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

|

19

■

■

■

■

■

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
27
28
29
30

20

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

5

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

N/R

14,087

-31.06%

Fitch

32,774

3,148

20,711

34,653

177,403

268,689

-0.01%

HR

789

N/R

558

N/R

455

1,802

8.49%

JCR

928

97

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

N/R

0.7%

-1.46%

Fitch

23.7%

15.0%

16.3%

20.8%

10.4%

12.4%

-0.20%

HR

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.

31

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

|

21

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

32

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.

33

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.

22

|

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

|

23

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

34

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.

24

|

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
HR

20,000

0

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

0

HR
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

|

25

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
0

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

62

DBRS

507

87

EJR

21

11

Fitch

1,288

330

NRSRO

2020

HR

58

10

JCR

60

29

KBRA

214

59

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.

35

36

26

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%

5.9%

Small NRSROs

1.1%

0.8%

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.

37

38

39

■

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

|

27

■

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

40
41
42
43
44

28

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.

45

46
47
48

49

50

51

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

|

29

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 %
($)/(#)

1

Moody’s

34,989

35

71.0/63.6

38,342

45

34.7/31.7

25,076

42

46.3/50.0

2

Fitch

23,485

23

47.7/41.8

57,361

60

51.9/42.3

38,037

46

70.2/54.8

3

DBRS

23,197

23

47.1/41.8

56,655

71

51.2/50.0

21,893

34

40.4/40.5

4

KBRA

16,614

16

33.7/29.1

46,466

47

42.0/33.1

25,825

32

47.7/38.1

5

S&P

11,485

14

23.3/25.5

45,885

55

41.5/38.7

18,176

23

33.6/27.4

49,266

55

110,557

142

54,155

88

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 %
($)/(#)

1

Fitch

16,105

16

100.0/100.0

31,428

32

100.0/100.0

26,953

30

100.0/100.0

2

KBRA

10,124

10

62.9/62.5

25,809

26

82.1/81.3

17,400

20

64.6/66.7

3

Moody’s

8,258

8

51.3/50.0

6,771

7

21.5/21.9

11,457

15

42.5/50.0

4

DBRS

8,135

8

50.5/50.0

6,984

7

22.2/21.9

9,553

10

35.4/33.3

5

S&P

7,358

7

45.7/43.8

22,906

22

72.9/68.8

14,769

14

54.8/46.7

16,105

16

31,428

32

26,953

30

1H-2022
Rank

Total Rated Market

52
53
54
55

30

“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 %
($)/(#)

1

Moody’s

26,454

26

80.4/68.4

31,571

38

39.9/34.5

11,388

23

47.9/48.9

2

DBRS

15,062

15

45.8/39.5

49,671

64

62.8/58.2

10,108

20

42.5/42.6

3

Fitch

7,379

7

22.4/18.4

25,933

28

32.8/25.5

8,582

12

36.1/25.5

4

KBRA

6,213

5

18.9/13.2

20,657

21

26.1/19.1

7,231

9

30.4/19.1

5

S&P

4,127

7

12.6/18.4

22,979

33

29.9/30.0

3,154

8

13.3/17.0

32,884

38

79,128

110

23,776

47

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 %
($)/(#)

1

Fitch

9,484

8

60.4/61.5

22,469

19

94.9/95.0

26,820

21

90.9/91.3

2

KBRA

8,406

7

53.6/53.8

7,538

7

31.8/35.0

14,480

11

49.1/47.8

3

DBRS

7,286

6

46.4/46.2

16,147

13

68.2/65.0

15,011

12

50.9/52.2

4

Moody’s

6,208

5

39.6/38.5

1,216

1

5.1/5.0

2,671

2

9.1/8.7

Total Rated Market

15,692

13

23,684

20

29,491

23

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

|

31

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 %
($)/(#)

1

S&P

111,577

142

52.0/39.0

192,962

291

49.2/43.0

159,660

240

58.3/47.9

2

Moody’s

87,172

112

40.7/30.8

171,700

199

43.7/29.4

114,382

157

41.8/31.3

3

Fitch

79,980

115

37.3/31.6

135,558

177

34.5/26.1

109,286

151

39.9/30.1

4

KBRA

73,697

155

34.4/42.6

101,188

252

25.8/37.2

50,550

139

18.5/27.7

5

DBRS

43,541

99

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

56

57

58

59

32

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 %
($)/(#)

1

KBRA

23,065

41

75.9/69.5

41,100

86

47.5/47.8

10,311

24

34.5/30.4

2

Moody’s

21,449

39

70.5/66.1

62,825

112

72.5/62.2

14,642

31

49.0/39.2

3

Fitch

15,488

27

50.9/45.8

32,996

75

38.1/41.7

14,755

46

49.4/58.2

4

DBRS

3,177

6

10.4/10.2

19,609

33

22.6/18.3

10,810

24

36.2/30.4

5

S&P

1,699

4

5.6/6.8

6,130

15

7.1/8.3

2,491

7

8.3/8.9

30,407

59

86,599

180

29,883

79

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%

60

61

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

|

33

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 %
($)/(#)

1

Moody’s

49,994

104

66.7/64.2

93,606

192

48.2/48.9

18,890

45

20.1/20.1

2

Fitch

35,416

72

47.3/44.4

39,195

76

20.2/19.3

32,815

72

35.0/32.1

3

S&P

28,877

62

38.5/38.3

101,931

207

52.5/52.7

81,589

193

87.0/86.2

4

KBRA

2,364

7

3.2/4.3

12,979

25

6.7/6.4

3,541

10

3.8/4.5

5

DBRS

151

3

0.2/1.9

3,227

4

1.7/1.0

330

1

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

62

63

64
65

34

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
66

67
68
69

70

71

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

|

35

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

72

73
74

75
76
77
78

36

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:
■
■

■

■
■

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
80
81
82
83
84
85
86
87
88

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

|

37

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

89
90
91

92

93

38

considerations in their credit ra

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3Aeb482ba2696bf22b. Public record. Not legal advice.