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Office of Credit Ratings

Staff Report

NATIONALLY RECOGNIZED

STATISTICAL RATING ORGANIZATIONS

FEBRUARY | 2024

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

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

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

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

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

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

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

conclusions contained herein.

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

CONTENTS

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

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

II.

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

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

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

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

Monitoring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

2023 Section 15E(p)(3) Examinations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

1. Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

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

3. Summary of Essential Findings and Responses to Material Regulatory Deficiencies. . . . 11

4. Responses to Recommendations from the 2022 Section 15E Examinations. . . . . . . . . 19

IV. STATE OF COMPETITION, TRANSPARENCY, AND CONFLICTS OF INTEREST . . . . . . . . . . . 21

A. Competition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

1. Select NRSRO Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

2. Market Share Observations in the Asset-Backed Securities Rating Category. . . . . . . . . 31

3. Barriers to Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Conflicts of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

ACTIVITIES RELATING TO NRSROs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

A. Commission Orders and Releases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Staff Publication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

VI. APPENDIX: SUMMARY OF STATUTORY FRAMEWORK AND RULES. . . . . . . . . . . . . . . . 47

S TA F F R E P O R T

CHARTS

Chart 1.

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

Chart 2. Number of Outstanding Credit Ratings as of December 31, 2022 by

Rating Category . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

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, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

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

December 31, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Chart 5. Breakdown of Ratings Reported Outstanding by NRSRO

as of December 31, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Chart 6. Breakdown of Non-Government Securities Ratings Reported

Outstanding by NRSRO as of December 31, 2022 . . . . . . . . . . . . . . . . . . . . . . . . 25

Chart 7. Breakdown of Government Securities Ratings Reported

Outstanding on December 31, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Chart 8. Total Non-Government Ratings Issued by All NRSROs (2018-2022) . . . . . . . . . . . . . 27

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

(2018-2022) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Chart 10.

Total ABS Ratings Issued by All NRSROs (2018-2022) . . . . . . . . . . . . . . . . . . . . . 28

Chart 11.

NRSRO Credit Analysts and Credit Analyst Supervisors . . . . . . . . . . . . . . . . . . . . 29

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

Reported Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

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

Issued in 2021, 2022, and First Half of 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Chart 14. Rating Agency Market Shares for U.S. Conduit CMBS Issued in 2021,

2022, and First Half of 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

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

Issued in 2021, 2022, and First Half of 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Chart 16. Rating Agency Market Shares for Agency CMBS Issued in 2021, 2022, and

First Half of 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

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

First Half of 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

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

First Half of 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

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

First Half of 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

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

I. INTRODUCTION

he Staff of the U.S. Securities and Exchange

Commission (Commission) provides this

Report regarding nationally recognized statistical rating organizations (NRSROs) pursuant

to Section 6 of the Credit Rating Agency Reform

Act of 2006 (Rating Agency Act)1 and Section

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

1934 (Exchange Act).2

Section 6 of the Rating Agency Act requires the

Commission to submit an annual report to the

Committee on Banking, Housing, and Urban

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

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

report relates:

■

Identifies applicants for registration as NRSROs

under Section 15E;

Specifies the number of, and actions taken on,

such applications; and

Specifies the views of the Commission on the

state of competition, transparency, and conflicts

of interest among NRSROs.

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

to make available to the public an annual report

summarizing:

■

Essential findings of all Section 15E

examinations, as deemed appropriate by the

Commission;

NRSROs’ responses to any material regulatory

deficiencies identified by the Commission; and

Whether the NRSROs have appropriately

addressed the recommendations of the

Commission contained in previous annual

reports.

This Report addresses the items specified in Section

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

This is a report of the Staff and, as such, reflects

solely the Staff’s views.

Information regarding the topics covered in this

Report with respect to prior periods can be found

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

Commission’s website.3

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

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

Act.

See “Reports and Studies” section of the OCR webpage, available at https://www.sec.gov/about/divisions-office/officecredit-ratings/reports-and-studies. 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. In 2021, OCR began publishing a single annual report to present the requirements under both

Section 6 of the Rating Agency Act and Section 15E(p)(3) of the Exchange Act.

S TA F F R E P O R T

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

II. STATUS OF REGISTRANTS AND

APPLICANTS

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

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

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

under Section 15E and issues credit ratings certified

by qualified institutional buyers, in accordance with

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

As of December 31, 2023, 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

(i) Financial institutions, brokers, or dealers;

(ii) Insurance companies;

(iii) Corporate issuers;

(iv) Issuers of asset-backed securities;4

(v) Issuers of government securities, municipal

securities, or securities issued by a foreign

government; or

(vi) A combination of one or more categories of

obligors described in any of clauses (i) through

(v) above.5

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 Demotech, 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

“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.

Collectively, the three large NRSROs account for approximately 91.1% of the aggregate revenue reported by all NRSROs

for the 2022 fiscal year in accordance with Rule 17g-3(a)(3); the three medium NRSROs collectively account for

approximately 7.3% of such aggregate revenue; and the four small NRSROs collectively account for approximately 1.6%

of such aggregate revenue. See infra Section IV.A.1.c, Chart 12.

S TA F F R E P O R T

Chart 1. Table of NRSROs

Categories of Credit

Ratings

Principal Office

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

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

U.S.

DBRS, Inc. (DBRS)

(i) through (v)

U.S.

(ii)

U.S.

Egan-Jones Ratings Company (EJR)

(i) through (iii)

U.S.

Fitch Ratings, Inc. (Fitch)

(i) through (v)

U.S.

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

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

Mexico

Japan Credit Rating Agency, Ltd. (JCR)

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

Japan

Kroll Bond Rating Agency, LLC (KBRA)

(i) through (v)

U.S.

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

(i) through (v)

U.S.

S&P Global Ratings (S&P)

(i) through (v)

U.S.

NRSRO

Demotech, Inc. (Demotech)

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

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

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.

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).

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 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.

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

In calendar year 2023, no applications for initial

registration as an NRSRO, or applications for

registration by a current NRSRO in additional

rating categories, were filed with the Commission.

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.13 Methodologies include, among other

things, the quantitative and qualitative models used

to determine credit ratings.

See Section 15E(c)(2).

S TA F F R E P O R T

III. EXAMINATIONS AND MONITORING

A. OVERVIEW

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

conducts examinations of each NRSRO at least

annually. 14 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 of the following eight topic areas

(Section 15E Review Areas):

■

Whether the NRSRO conducts business in

accordance with its policies, procedures, and

rating methodologies;

Management of conflicts of interest by the

NRSRO;

■

Implementation of ethics policies by the

NRSRO;

Internal supervisory controls of the NRSRO;

Governance of the NRSRO;

Activities of the Designated Compliance Officer

(DCO) of the NRSRO;

Processing of complaints by the NRSRO; and

Policies of the NRSRO governing the

post-employment activities of its former staff.

This Section III discusses the annual examinations

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

late 2022 and concluded in late September 2023

(2023 Section 15E examinations).

B. RISK ASSESSMENT

The 2023 Section 15E examinations encompassed all of the statutorily required Section 15E

Review Areas. The Staff also determined areas of

emphasis and issues of focus for each examination

based upon an NRSRO-specific risk assessment

performed by the Staff, while also considering how

to limit the amount of personal data collected in

the examination process. The NRSRO-specific

risk assessments considered a number of factors,

including, but not limited to:

■

NRSROs’ rating activities and operations;

Staff’s findings, recommendations, and other

observations from prior examinations;

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

S TA F F R E P O R T

■

Impact of a potential or actual internal control

or compliance failure by the NRSRO;

Recent industry developments affecting

NRSROs and the asset classes in which the

NRSRO is registered;

NRSROs’ filings with the Commission and

public disclosures;

NRSROs’ self-identified weaknesses;

Relevant Tips, Complaints, and Referrals

(TCRs) received by the Commission; and

Risks identified in a risk assessment process.

Through its risk assessment process in connection

with the 2023 Section 15E examinations, the 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:

■

Effect of Higher Interest Rates: The Staff

observed that the sustained rise in interest rates

in 2022 had increased debt service payments

of highly leveraged companies, putting them

under increased financial pressure. Given the

potential impact on the creditworthiness of

such companies, the Staff identified NRSRO

surveillance of low-rated companies as an

area for examination. NRSRO surveillance

of collateralized loan obligations and

securitizations backed by consumer assets and

auto loans were also identified as potential

areas for examination, given the Staff’s view

that higher interest rates could impact the credit

quality of such issuances.

Rental Income Securitizations: Large institutions

have sharply increased their investments in

single-family rental properties in certain regions

and have securitized rental income from those

C. MONITORING

To help inform its risk assessment process and

examination program, the Staff in 2023 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 include communications with NRSROs

and reviewing sources such as NRSRO publications, news reports, trade publications, academic

papers, industry conference information, and

government reports.

See Report from the Committee on Appropriations on the Financial Services and General Government Appropriations Bill,

2023, 117th Congress (June 28, 2022), available at https://www.congress.gov/117/crpt/hrpt393/CRPT-117hrpt393.pdf.

■

properties as a source of funding. The House

Committee on Appropriations commented

on transparency and rating requirements and

procedures in the rental income securitization

market that might contribute to financial

or housing price instability.15 Given these

comments, the Staff identified ratings of such

securitizations as an area for examination.

Distinguishing Analytical Tools from Models:

NRSROs must establish policies and procedures

regarding the development of and approval by

its board of directors, or a body performing a

function similar to that of a board of directors,

of the quantitative models used to determine

credit ratings. In addition to models, some

NRSROs may also use analytical tools to

perform quantitative calculations that they do

not consider to be models. The Staff identified

as areas for examination the process by which

an NRSRO distinguishes between analytical

tools and models, how NRSROs utilize

analytical tools, and how approval processes

may differ for analytical tools and models.

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

For example, the Staff gathered information on the

potential credit impacts of the unsettled commercial

real estate market. NRSROs reported that they are

actively monitoring the potential credit impacts of

higher interest rates and soft commercial real estate

demand across their rated portfolios, including

with regard to CMBS and REITs. NRSROs also

published research and commentaries regarding

commercial real estate, examples of which are

discussed in Section IV.B of this Report.

The Staff also continued to monitor NRSRO rating

activity related to crypto assets, including so-called

decentralized finance (DeFi), distributed ledger

technologies, and smart contracts. Although rating

activity in this area remains limited, one example

is S&P’s and Moody’s ratings of Coinbase Global

Inc., a crypto-asset trading platform.16 Another

example is Moody’s credit ratings of blockchainbacked bonds issued by the European Investment

Bank (EIB); Moody’s view is that the ultimate credit

risk remains with EIB because they are obligated

to make payments on the bonds independent

of any risk introduced by the new technology

features.17 Additionally, both S&P and Moody’s

rate MicroStrategy Inc., a software company with

significant Bitcoin holdings.18

In 2023, 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

agencies.19 Each college engaged in periodic discussions during 2023 regarding supervisory activities

related to the credit rating agencies. The Staff also

conducted additional discussions with foreign

regulators, as appropriate.

D. 2023 SECTION 15E(p)(3)

EXAMINATIONS

1. Overview

The 2023 Section 15E examinations generally

focused on the NRSROs’ activities for the period

covering January 1, 2022, through December 31,

2022 (the Review Period). The examinations also

reviewed certain activities or credit rating actions

from outside the Review Period, as appropriate.20

S&P’s and Moody’s current ratings of Coinbase may be found, respectively, at the following links: https://disclosure.

spglobal.com/ratings/en/regulatory/org-details/sectorCode/FI/entityId/690877 and https://www.moodys.com/credit-ratings/

Coinbase-Global-Inc-credit-rating-867853012/summary.

See Moody’s rates EIB’s first-ever green digital bond Aaa, Moody’s (Jul 3, 2023) available at https://www.moodys.com/

research/Moodys-rates-EIBs-first-ever-green-digital-bond-Aaa-Rating-Action--PR_477956; see also Moody’s assigns Aaa

rating to EIB’s third digital bond, Moody’s (Feb 28, 2023) available at https://www.moodys.com/research/Moodys-assignsAaa-rating-to-EIBs-third-digital-bond-Rating-Action--PR_473857; see also Moody’s assigns Aaa rating to EIB’s second

digital bond, Moody’s (Nov 29, 2022) available at https://www.moodys.com/research/Moodys-assigns-Aaa-rating-to-EIBssecond-digital-bond-Rating-Action--PR_471665.

S&P’s and Moody’s current ratings of MicroStrategy Inc. may be found, respectively, at the following links: https://

disclosure.spglobal.com/ratings/en/regulatory/org-details/sectorCode/CORP/entityId/683025 and https://www.moodys.

com/credit-ratings/MicroStrategy-Incorporated-credit-rating-823373715/summary.

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 the 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.

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.

S TA F F R E P O R T

The 2023 Section 15E examinations included a

review of the Section 15E Review Areas and examination of each NRSRO’s compliance with Section

15E and Rules 17g-1 through 17g-10. For example,

the Staff reviewed a sample of rating actions of

each NRSRO in certain asset classes for which it

is registered and for certain issuers and obligors

to determine whether the NRSRO operated in

accordance with its policies, procedures, and rating

methodologies. The Staff also reviewed rating

files and documentation to evaluate whether each

NRSRO adhered to recordkeeping requirements.21

2. Terms Used in This Report

This Report contains a summary of, respectively,

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

regulatory deficiencies, and whether the NRSROs

have appropriately addressed the recommendations

contained in previous reports.22

For purposes of this Report, the Staff considers an

“essential finding” to be any instance identified

by the Staff of apparent non-compliance by an

NRSRO with the federal securities laws or related

Commission rules applicable to NRSROs, except

those instances attributable to a non-recurring

and non-significant clerical or ministerial error or

omission. The essential findings described in this

Report reflect the Staff’s conclusions following

examination of the NRSROs. The essential findings

are not findings or conclusions of the Commission

and have not been subject to adjudication.

For purposes of this Report, the Staff considers

“material regulatory deficiencies” to be essential

findings that involve:

■

Conduct or a deficiency that could undermine

the quality of a credit rating or impair the

objectivity of an NRSRO’s credit rating process;

Conduct that may be inconsistent with the antifraud provisions of the federal securities laws.

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

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

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 essential findings by each large NRSRO,

medium NRSRO, and small NRSRO in a random

ordering.23

a. Large NRSRO #1

(1) The NRSRO’s policies and procedures

did not require reviews in connection with

the departure of employees holding certain

positions, notwithstanding that individuals

in such positions are eligible to participate in

rating committees. The Staff recommended that

the NRSRO revise or supplement its policies

and procedures related to post-employment

review requirements to ensure that such

reviews are conducted for all applicable former

employees who participated in determining

credit ratings, as required by Section 15E(h)

(4)(A). The Staff also recommended that the

NRSRO identify post-employment reviews that

should have been conducted but were not and

conduct those reviews.

(2) The Staff reviewed the underlying information with respect to certain rating transitions

disclosed on Exhibit 1 to Form NRSRO and

observed a number of instances where, contrary

to the instructions to the form, multiple ratings

for a single entity were included in the under-

lying information. The Staff recommended

that the NRSRO modify its approach for

determining which credit ratings to include in its

performance measurement statistics in accordance with the instructions to Form NRSRO.

b. Large NRSRO #2

(1) The NRSRO did not publish an information disclosure form for rating actions with

respect to a certain type of private credit rating.

The Staff recommended that the NRSRO

provide information disclosure forms for such

rating actions to the same persons who can

receive or access ratings of this type in accordance with the requirements of Rule 17g-7(a).

The Staff also recommended that the NRSRO

revise its policies and procedures to reflect the

requirement to publish information disclosure

forms with respect to such ratings.

c. Large NRSRO #3

(1) The NRSRO did not appear to require

a sufficient record to be made and retained

with respect to certain determinations made

during surveillance reviews. The Staff reviewed

documentation related to a surveillance review

but, due to the lack of a documented rationale,

was not able to determine whether the decision

that the rating was at an appropriate rating

level was made in accordance with the applicable methodology. The Staff recommended

that the NRSRO improve its internal control

structure required by Section 15E(c)(3)(A),

including by making and retaining appropriate

documentation of qualitative considerations, to

allow for after-the-fact verification that surveillance decisions were consistent with the applicable methodologies.

The annual examination of one of the small NRSROs did not identify any essential findings.

S TA F F R E P O R T

(2) With regard to two ratings, a member

of an analytical team who chaired the rating

committees exerted pressure on other analytical

team members and rating committee participants to assign higher ratings. Records of

statements made by this individual reflect a

focus on gaining business and, with respect

to one of the issuers, a desire to make accommodations to please the issuer. Contrary to

the NRSRO’s policies and procedures, this

individual participated in sales and marketing

activities and appears to have been influenced

by sales and marketing considerations. The

individual also participated in the determination of the credit ratings by acting as chair

of the rating committees, and, as such, the

NRSRO appeared to issue and maintain credit

ratings notwithstanding the existence of a

prohibited conflict of interest. The Staff recommended that, consistent with the requirements

of Section 15E(h) and Rule 17g-5(c)(8), the

NRSRO enhance enforcement of its policies

and procedures to prevent persons within

the NRSRO who participate in determining

credit ratings from also participating in sales

or marketing or being influenced by sales or

marketing considerations.

The Staff identified this essential finding as a

material regulatory deficiency.

In its response, the NRSRO noted that it

conducted an internal investigation of the

matter after an employee had anonymously

reported the actions of the individual in

question by means of the NRSRO’s dedicated

reporting hotline. The NRSRO also noted

that, following its investigation, it took

remedial action by terminating the individual’s

employment and that it subsequently selfreported the matter to the Staff. In addition,

based on its internal investigation and an

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

internal independent credit review, the NRSRO

concluded that each of the two credit ratings

was at an appropriate rating level in accordance

with the applicable methodologies and had

not been affected by the individual’s conduct.

Although the NRSRO stated that it believes its

applicable procedures and controls are robust

and functioning well, the NRSRO indicated

that it is reviewing its policies, procedures, and

controls to consider if any enhancements are

warranted to help prevent such conduct from

occurring in the future.

(3) In some instances, analysts inadvertently

sent emails with confidential pending rating

action information to persons outside the

NRSRO. Contrary to the NRSRO’s policies

and procedures, in most of the instances, the

NRSRO’s compliance department was not

promptly notified of the inappropriate dissemination of material non-public information. The

Staff recommended that the NRSRO enforce its

policies and procedures to prevent the misuse

of material, nonpublic information, as required

by Section 15E(g)(1), and consider whether

additional controls are needed. The Staff also

recommended that the NRSRO take measures

to ensure that NRSRO personnel understand

their obligation to promptly report to the

NRSRO’s compliance department instances

where non-public information has been

inappropriately disclosed.

(4) In assigning certain credit ratings, the

NRSRO used a model that contained both

prepopulated data fields and data fields that

required the analyst to enter appropriate values.

The NRSRO assigned certain ratings that were

higher than they should have been because a

prepopulated value in a model was incorrect

for the issuer and the analyst did not recognize

or correct the error prior to determining

the rating. The Staff recommended that the

NRSRO enhance its internal control structure

required by Section 15E(c)(3)(A) as it pertains to

adherence to its methodologies and the calculation of certain metrics.

(5) The NRSRO did not disclose complete

and correct credit rating histories in its Rule

17g-7(b) disclosures. For a particular month,

the NRSRO posted a disclosure that did not

include a significant number of withdrawn

credit ratings that were required to be disclosed.

For a different month, the subclass designation

of a significant number of ratings was misclassified, and the file contained duplications of

some rating information. Further, the NRSRO

did not include a particular rating in the

NRSRO’s credit rating history disclosures for

approximately 18 months. The Staff recommended that the NRSRO implement appropriate procedures or controls to ensure the

accurate creation and maintenance of its credit

rating history disclosures.

d. Medium NRSRO #1

(1) In several instances, the NRSRO provided

inaccurate or incomplete records in response to

requests from the Staff. The Staff recommended

that the NRSRO implement appropriate

controls to ensure that it maintains accurate

records and promptly provides complete copies

of all relevant documents in its productions to

the Staff, as required by Rule 17g-2(f).

(2) Some information disclosure forms

contained a link purporting to provide the

historical performance disclosure required by

Rule 17g-7(a). However, clicking on the link

did not retrieve the required information. The

Staff recommended that the NRSRO ensure

that its information disclosure forms contain the

required information for all rating actions.

e. Medium NRSRO #2

(1) The NRSRO did not appear to require

a sufficient record to be made and retained

with respect to certain qualitative adjustments

made by analysts in the course of conducting

surveillance reviews. The Staff reviewed

documentation related to a surveillance

review but, due to the lack of a documented

rationale, was not able to determine whether

certain adjustments were made in accordance

with the applicable methodology. The Staff

recommended that the NRSRO improve its

internal control structure required by Section

15E(c)(3)(A), including by making and retaining

appropriate documentation of qualitative

considerations, to allow for after-the-fact

verification that surveillance decisions were

consistent with the applicable methodologies.

(2) Although a process for users of credit

ratings to submit complaints anonymously

exists at this NRSRO, it is not apparent

or intuitive how to do so. The difficulty in

submitting complaints anonymously may

discourage users of credit ratings from communicating bona fide complaints to the NRSRO.

The Staff recommended that the NRSRO

establish effective procedures for the receipt,

retention, and treatment of confidential,

anonymous complaints by users of credit

ratings, consistent with the requirements of

Section 15E(j)(3).

(3) The Staff reviewed the underlying information with respect to certain rating transitions

disclosed on Exhibit 1 to Form NRSRO and

observed three errors inconsistent with the

instructions to the form—the inclusion of a

withdrawn rating, the inclusion of an indicative

rating, and the inclusion of a debt rating when

an obligor rating was available. The Staff

recommended that the NRSRO ensure that the

S TA F F R E P O R T

performance measurement statistics disclosed

in Exhibit 1 to Form NRSRO are accurate and

consistent with the instructions to the form.

f. Medium NRSRO #3

(1) The NRSRO’s policy regarding securities

holdings generally requires employees to

report their holdings to the compliance

department. Certain accounts, however, were

excluded from this requirement. Since the

exclusion was not limited to indirect ownership

interests, the NRSRO’s policy did not appear

to be reasonably designed, given the lack of

monitoring of holdings that could result in a

conflict of interest under Rule 17g-5(b)(6) or

Rule 17g-5(c)(2). The Staff recommended that,

consistent with the requirements of Section

15E(h)(1), the NRSRO establish, maintain,

and enforce written policies and procedures

reasonably designed to address and manage

conflicts of interest with respect to directly

owned securities held in the excluded accounts

and review past account statements for such

accounts to identify any instances where a credit

analyst participated in determining a credit

rating or had responsibility for approving a

rating while directly owning securities of the

rated entity.

(2) The NRSRO did not enforce its policies

and procedures regarding conflict of interest

reviews following the departure of employees

who participate in determining credit ratings

and the submission of employment transition

reports to the Commission with respect to

former employees who obtain employment at

an entity rated by the NRSRO. In one instance,

the NRSRO did not conduct a conflict of

interest review within 30 days of learning that

a former employee had joined a rated entity,

as required by its policies and procedures; and

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

instead conducted the review eight months

later. In another instance, although the NRSRO

conducted the conflict of interest review in

accordance with its policies and procedures,

it did not submit an employment transition

report to the Commission for over nine months.

In addition, the NRSRO’s written procedures

did not require monitoring of all departed

employees for five years as necessary to comply

with the employment transition reporting

requirements of Section 15E(h)(5)(A). The Staff

recommended that the NRSRO conduct conflict

of interest reviews for departed employees in

accordance with its policies and procedures

and as required by Section 15E(h)(4)(A). The

Staff also recommended that the NRSRO

evaluate and revise its policies and procedures

for submitting employment transition reports to

the Commission to ensure compliance with the

requirements of Section 15E(h)(5)(A).

f. Small NRSRO #1

(1) The NRSRO maintained a system to

measure credit rating analyst productivity based

on the number of rating actions an analyst

was able to complete on a weekly basis. With

respect to the initial determination of a credit

rating, an analyst only received credit under the

system if the credit rating was actually issued. In

the Staff’s view, this system established incentives for analysts to produce ratings as quickly

as possible, without regard to rating quality,

and the presence of such incentives made it

difficult or impossible for the NRSRO to

manage conflicts of interest related to how the

NRSRO is paid for credit ratings. Furthermore,

the system appeared to be designed to achieve

sales and marketing objectives and to result

in analytical employees being influenced by

sales and marketing considerations. The Staff

recommended that the NRSRO eliminate

performance measures for analysts that

promote sales and marketing considerations

and exacerbate conflicts of interest. The Staff

also recommended that the NRSRO maintain

adequate resources and utilize those resources to

implement and enforce policies, procedures, and

controls necessary to consistently produce credit

ratings with integrity.

The Staff identified this essential finding as a

material regulatory deficiency.

In its response, the NRSRO stated its belief

that its conflict-related policies and procedures,

training, and other controls provide a high

measure of assurance regarding the NRSRO’s

compliance with Rule 17g-5. The NRSRO

noted a lack of adverse responses to an annual

survey of analysts regarding the presence of

conflicts of interest. Nonetheless, the NRSRO

indicated that it eliminated the productivity

measurement system upon receipt of the Staff’s

finding and recommendation and that it plans

to significantly augment the level of oversight

of the firm’s compensation and promotion

policies and practices by the NRSRO’s board

of directors. The NRSRO also noted that it

plans to perform a review of the adequacy of

financial and managerial resources available to

consistently produce ratings with integrity and

will augment such resources as necessary and

appropriate in accordance with the results of

the review.

(2) In one instance, a senior manager of the

NRSRO prevented the designated compliance

officer from enforcing a policy and procedure

regarding permitted attendance at a joint

meeting of analytical and marketing personnel

with clients. The senior manager’s interference

with the designated compliance officer’s

enforcement of the policy appeared to inhibit

the designated compliance officer’s ability to

fulfill their Section 15E(j)(1) responsibility to

administer conflicts of interest policies and

procedures and ensure compliance with the

securities laws. The Staff recommended that

the NRSRO, as required by Section 15E(h)

(1), enforce its conflicts of interest policies

and procedures 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.

The Staff identified this essential finding as a

material regulatory deficiency.

In its response, the NRSRO stated that it plans

to conduct a training session on its procedure

regarding joint analytical and commercial

meetings and calls and remind its employees by

e-mail of the importance of adhering to such

procedure. The NRSRO also indicated that it

will perform a review of its discipline procedures, with a view toward strengthening disciplinary measures taken in response to intentional

noncompliance with compliance obligations.

(3) The NRSRO did not appear to adhere to

the policies and procedures it adopted pursuant

to Section 15E(j)(3) to establish procedures

for the receipt, retention, and treatment of

complaints regarding credit ratings, models,

and methodologies. In one instance, an analyst

notified management about errors related to

the incorporation of new information into a

model used in the rating process. Although

the analyst’s emails appeared to constitute a

complaint under the NRSRO’s definition of that

term, the NRSRO did not follow its policies

and procedures regarding the receipt, retention,

and treatment of complaints. The Staff

recommended that the NRSRO adhere to its

S TA F F R E P O R T

complaints policies and procedures and ensure

that its employees understand what types of

communications constitute a complaint under

such policies and procedures.

(4) In 2022, the NRSRO did not conduct

surveillance reviews for a significant number

of ratings within the time frame required by

its policies and procedures, demonstrating that

the NRSRO’s internal controls surrounding

adherence to its policies and procedures for

determining credit ratings were not effective.

The Staff recommended that the NRSRO

implement effective controls promoting

adherence to the surveillance review requirements set forth in its policies and procedures, as

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

(5) The NRSRO’s policy regarding securities

holdings generally requires employees to report

their holdings to the compliance department.

Certain accounts, however, were excluded

from this requirement. Since the exclusion was

not limited to indirect ownership interests, the

NRSRO’s policy did not appear to be reasonably

designed, given the lack of monitoring of

holdings that could result in a conflict of interest

under Rule 17g-5(b)(6) or Rule 17g-5(c)(2). The

Staff recommended that, consistent with the

requirements of Section 15E(h)(1), the NRSRO

establish, maintain, and enforce written policies

and procedures reasonably designed to address

and manage conflicts of interest with respect to

directly owned securities held in the excluded

accounts and review past account statements for

such accounts to identify any instances where

a credit analyst participated in determining a

credit rating or had responsibility for approving

a rating while directly owning securities of the

rated entity.

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

i. Small NRSRO #2

(1) The Staff observed an instance where

the NRSRO changed its rating analysis at

the behest of a client in order to provide the

client with a higher rating that was determined

inconsistently with the NRSRO’s policies,

procedures, and methodologies for determining

credit ratings. The NRSRO’s internal control

structure was ineffective in identifying inconsistencies between the client’s suggestion and the

NRSRO’s methodology. Specifically, oversight

by the rating committee appears to have been

ineffective in this case. Based on a review

of committee minutes and discussions with

committee members, the Staff concluded that

the committee did not appropriately scrutinize

the change in analytical approach. Further,

the circumstances under which the NRSRO

changed its rating analysis demonstrate that

analytical personnel were influenced by sales

and marketing considerations, and, as such, the

NRSRO issued and maintained the credit rating

notwithstanding the existence of a prohibited

conflict of interest. The Staff recommended

that the NRSRO enhance its internal control

structure required by Section 15E(c)(3)(A) and

consider subjecting rating outcomes changed

at a client’s request to enhanced scrutiny. The

Staff also recommended that the NRSRO

review and, if appropriate, revise, any credit

ratings that were determined using a similar

analytical approach and, more broadly, any

credit ratings that were determined using an

analytical approach recommended by a client.

The Staff identified this essential finding as a

material regulatory deficiency.

In its response, the NRSRO stated that it plans

to modify the relevant methodology to clarify

the NRSRO’s analytical approach in situations

such as those underlying the Staff’s finding.

The NRSRO also indicated that it will enhance

controls regarding the evaluation of additional

information provided by an entity after a

rating has been determined. The enhanced

controls identified by the NRSRO include

requiring documentation related to the analysis

of the information and memorializing related

rating committee discussions. The NRSRO

further stated that it will conduct a review

of outstanding credit ratings in connection

with the implementation of its contemplated

methodology changes and that it will prepare a

special report for discussion by its methodology

development committee.

(2) The NRSRO did not appear to have

effective internal controls to ensure that models

were adequately evaluated and validated prior

to use. With respect to one model, although a

review was conducted and the model validated,

such process did not discover apparent inconsistencies between the model and the governing

methodology. The Staff recommended that,

consistent with the requirements of Section

15E(c)(3)(A), the NRSRO implement controls

reasonably designed to ensure that newly

developed or updated models are adequately

evaluated and validated prior to being put

in use. The Staff also recommended that the

NRSRO conduct a review of and, where appropriate, revise credit ratings that were determined

using financial metrics that were calculated in a

manner inconsistent with the methodology.

The Staff identified this essential finding as a

material regulatory deficiency.

In its response, the NRSRO expressed

disagreement with the Staff’s conclusion that

the model was inconsistent with the governing

methodology and indicated that it plans to

amend the methodology to provide clarity

regarding its intended analytical approach.

The NRSRO also indicated that it plans to

document detailed minutes of board of directors

discussions in connection with the approval of

methodologies and models.

(3) The Staff observed an instance where the

NRSRO did not retain a record of a model

output that determined a model-implied rating

used in the rating analysis. The Staff recommended that the NRSRO retain all internal

records used to form the basis of a credit rating,

as required by Rule 17g-2.

(4) The NRSRO made disclosures that

implied it was registered as an NRSRO in

certain asset classes in which it was not registered. In light of the Section 15E(f)(2) prohibition on a credit rating agency stating that it

is an NRSRO when it is not registered as such,

the Staff recommended that the NRSRO revise

its existing disclosures and public filings, so

they do not contain misleading information

regarding the classes of credit ratings in which

the NRSRO is registered.

(5) In certain instances, analysts used a

messaging application to conduct analytical

discussions pertaining to the determination of

credit ratings. However, the NRSRO had limited

access to message histories and, as a result, did

not retain the communications for three years, as

required by Rule 17g-2(c). Further, the NRSRO

did not have policies and procedures governing

the use of the messaging application, and the

NRSRO’s procedures governing document

retention did not address communications on

S TA F F R E P O R T

the messaging application. The Staff recommended that the NRSRO retain all external and

internal communications relating to initiating,

determining, maintaining, monitoring, changing,

or withdrawing a credit rating, as required by

Rule 17g-2(b)(7), and establish appropriate

controls to monitor communications to ensure

compliance with its policies and procedures and

applicable rules and statutes.

(6) The NRSRO published an information

disclosure form that did not include all the

information required to be disclosed under Rule

17g-7(a). Specifically, the NRSRO omitted

from the form a disclosure regarding payment

during the most recently ended fiscal year for

non-credit rating services by a person that paid

the NRSRO to determine a credit rating. The

Staff recommended that, when applicable, the

NRSRO state in the information disclosure

form that it was also paid for services other than

determining credit ratings by a person that paid

it to determine the credit ratings.

(7) The Staff reviewed the underlying information with respect to certain rating transitions

disclosed on Exhibit 1 to Form NRSRO and

observed several instances where, contrary to

the instructions to the form, multiple ratings for

a single entity were included in Exhibit 1. The

NRSRO indicated to Staff that it includes all

credit ratings in its performance measurement

statistics. The Staff recommended that the

NRSRO modify its approach for determining

the credit ratings to include in its performance

measurement statistics in accordance with the

instructions to Form NRSRO.

j. Small NRSRO #3

(1) The Staff identified instances where the

NRSRO did not appear to store documents

containing confidential information in a manner

that would prevent unauthorized access, as

required by the NRSRO’s policies and procedures. In addition, the NRSRO’s policies and

procedures appeared to lack sufficient guidance

regarding the handling of physical documents,

creating the potential for inappropriate dissemination of material, non-public information and

exposing analytical staff to sales and marketing

considerations. The Staff recommended that

the NRSRO establish, maintain, and enforce

policies and procedures reasonably designed

to safeguard physical documents to prevent

the misuse of material non-public information

and to prevent analytical staff from being

influenced by sales or marketing considerations,

as required by Section 15E(g)(1) and Section

15E(h)(1), respectively.

Additionally, one of the NRSROs appeared to not

comply with certain requirements in a Commission

order. The Staff recommended that the NRSRO

comply with these requirements.

In total, the Staff communicated 29 essential

findings to the NRSROs at the conclusion of the

2023 Section 15E examinations and identified five

of these essential findings as material regulatory

deficiencies. The essential findings can be grouped

thematically as follows:

■

nine related to issues addressing or managing

conflicts of interest, implicating Sections 15E(h)

(1), (4) and (5), and Rule 17g-5;24

One of these findings also implicated material, non-public information and another implicated internal controls. Each such

finding is double counted within the list as a result.

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

■

eight related to disclosure or reporting issues,

implicating Section 15E(f)(2), Rule 17g-7(a),

Rule 17g-7(b), and Form NRSRO;

six related to internal control issues, implicating

Section 15E(c)(3)(A);25

three related to the retention and/or production

of records, implicating Rule 17g-2;

two related to issues regarding the prevention

of misuse of material, non-public information,

implicating Section 15E(g)(1);26

two related to procedures for the receipt,

retention, and treatment of complaints,

implicating Section 15E(j)(3); and

one related to compliance with a prior

Commission order.

4. Responses to Recommendations from

the 2022 Section 15E Examinations

To assess whether NRSROs appropriately

addressed recommendations from the 2022

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. The Staff also continued to assess remedial

measures taken to address recommendations

from prior Section 15E examinations that had not

previously been determined to have been appropriately addressed.

During the 2023 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 may not be able to fully assess the effectiveness of these measures during the 2023 Section

15E examinations.

The Staff determined all recommendations from

the 2022 Section 15E examinations and, to the

extent they had not previously been determined

to have been appropriately addressed, prior

Section 15E examinations, have been appropriately addressed, except as noted below. NRSROs

generally addressed the recommendations from the

2022 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 attempted certain remedial efforts,

but that such efforts did not appropriately address

the corresponding recommendation. In 2022, the

Staff found that the small NRSRO did not appear

to acquire and analyze all material analytical

facts when determining a credit rating. The Staff

recommended that the NRSRO enhance its

internal controls governing the implementation

of and adherence to its policies, procedures, and

methodologies for determining credit ratings as

they pertain to data quality control, transaction

vetting, and acquisition of information about its

issuers. The Staff determined that the NRSRO did

not appropriately address the 2022 recommendation because the NRSRO’s remediation did not

enhance its internal controls around data quality,

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

vetting new transactions, or acquiring information

about its issuers in a way that would prevent

future ratings from being issued despite a lack of

consideration and understanding of all material

analytical facts.

In another instance, the Staff determined that a

small NRSRO had completed its remedial efforts,

but that such efforts did not appropriately address

the corresponding recommendation. In 2022, the

Staff found that several information disclosure

forms published by the small NRSRO did not

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

appear to include disclosures required under Rule

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

ensure that its information disclosure forms contain

all required disclosures. While the Staff observed

in the 2023 examination that the NRSRO made

efforts to address the previous recommendation,

the Staff determined that the NRSRO did not

appropriately address the 2022 recommendation

because the Staff identified a continued failure to

disclose one of the required items that was the

subject of the 2022 finding.

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

maintained a meaningful ratings share in the assetbacked securities category.27

year, in each rating category for which it is registered.28 This information, for the calendar year

ending December 31, 2022, is summarized in

Charts 2 through 10 below and can be useful in

determining the breadth of an NRSRO’s coverage

with respect to issuers, obligors, and securities or

money market instruments within a particular

rating category:

■

a. NRSRO Credit Ratings Outstanding

Each NRSRO annually reports not later than

March 31st the number of credit ratings

outstanding, as of the end of the preceding calendar

■

Chart 2 depicts the number of credit ratings each

NRSRO had outstanding, as of December 31,

2022, in each rating category for which it was

registered.

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 specific asset-backed

securities rating subcategories over the past few years.

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

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

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

S TA F F R E P O R T

■

Chart 6 illustrates the percentage of ratings

each NRSRO had outstanding across all

rating categories other than the government

securities category.

Chart 7 depicts the percentage of ratings each

NRSRO had outstanding in the government

securities category.

Chart 8 depicts the change in the number of

non-government ratings outstanding for each

NRSRO over the prior five years.

Chart 9 depicts the change in the number of

non-government ratings outstanding for each

small and medium NRSRO over the prior five

years.

Chart 10 depicts the change in the number of

asset-backed securities ratings outstanding for

each NRSRO over the prior five years.

While comparing the number of ratings outstanding

among NRSROs provides a cumulative view on

the state of competition over time,29 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 asset-backed securities

rating category), which provides information about

ratings issued each year since 2021, may provide

additional insight regarding the current competitive

landscape among the NRSROs in the asset-backed

securities rating category.

There are additional limitations to assessing the

state of competition in each rating category and in

the aggregate based on the number of outstanding

ratings. For instance, some NRSROs have pursued

business strategies to specialize in particular rating

categories or sub-categories.30 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.31

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.32

Chart 2 provides the number of outstanding

credit ratings reported by each NRSRO in its

annual certification for the calendar year ending

December 31, 2022, in each of the five rating

categories identified in Section 3(a)(62)(A) for

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

Chart 2. Number of Outstanding Credit Ratings as of December 31, 2022, by Rating Category

Financial

Institutions

Insurance

Companies

Corporate

Issuers

AssetBacked

Securities

Government

Securities

Total

Ratings

Year-Over-Year

Change in Total

Ratings

(2021 to 2022)

AMB

N/R

7,373

979

N/R

8,359

1.10%

DBRS

8,179

190

2,515

18,712

33,009

62,605

1.66%

Demotech

N/R

439

N/R

439

N/A

EJR

6,020

626

8,673

N/R

15,319

8.75%

Fitch

33,890

3,219

20,485

34,091

170,291

261,976

-2.50%

810

N/R

597

N/R

452

1,859

3.16%

JCR

923

3,296

N/R

369

4,687

3.72%

KBRA

1,880

219

527

21,830

9,898

34,354

13.92%

Moody’s

35,643

2,702

32,554

51,826

548,837

671,562

-1.65%

S&P

56,773

6,924

55,009

37,338

908,740

1,064,784

-2.31%

Total

144,118

21,791

124,635

163,804

1,671,596

2,125,944

-1.69%

NRSRO

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

As Demotech was not registered as an NRSRO in 2021, year-over-year data is not available.

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

Sources: NRSRO annual certifications for the 2021 and 2022 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, 2022

Financial

Institutions

Insurance

Companies

Corporate

Issuers

AssetBacked

Securities

Government

Securities

Total

Ratings

Percentage Point

Change in Total Ratings

from 2021 to 2022

AMB

N/R

33.84%

0.79%

<0.01%

N/R

0.39%

0.01%

DBRS

5.68%

0.87%

2.02%

11.42%

1.97%

2.94%

0.10%

Demotech

N/R

2.01%

N/R

0.02%

N/A

EJR

4.18%

2.87%

6.96%

N/R

0.72%

0.07%

Fitch

23.52%

14.77%

16.44%

20.81%

10.19%

12.33%

-0.10%

0.56%

N/R

0.48%

N/R

0.03%

0.09%

<0.01%

JCR

0.64%

0.45%

2.64%

N/R

0.02%

0.22%

0.01%

KBRA

1.30%

1.01%

0.42%

13.33%

0.59%

1.62%

0.22%

Moody’s

24.73%

12.40%

26.12%

31.64%

32.83%

31.59%

0.01%

S&P

39.39%

31.77%

44.14%

22.79%

54.36%

50.08%

-0.32%

NRSRO

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

As Demotech was not registered as an NRSRO in 2021, year-over-year data is not available.

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

Sources: NRSRO annual certifications for the 2021 and 2022 calendar years, Item 7A on Form NRSRO.

S TA F F R E P O R T

which the NRSRO was registered as of December

31, 2022, as applicable, as well as the percentage

change in total ratings for each NRSRO from 2021

to 2022. 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 registered, as reported by each NRSRO in its annual

certification for the calendar year ending December

31, 2022, as well as the percentage increase or

decrease in total ratings from 2021 to 2022.33

The large NRSROs accounted for 94.0% of

all the ratings outstanding as of December 31,

2022—slightly lower than their 94.4% share as of

December 31, 2021.34

Chart 4. Breakdown of Ratings Reported

Outstanding by Rating Category as of

December 31, 2022

7.7%

6.8%

78.6%

5.9%

1.0%

Government Securities 78.6%

Asset-Backed Securities 7.7%

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 nine

years, AMB reported that it had the most credit

ratings outstanding in the insurance category.35

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, 2022.

As illustrated by Chart 4, the largest proportion

of the aggregate credit ratings reported to be

Financial Institutions 6.8%

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 2022

calendar year, Item 7A on Form NRSRO.

outstanding were in the government securities

category, which may be attributable to the large

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

of municipal securities) and their multiple debt

offerings. The government securities category

accounted for 78.6% of the total number of

For example, according to Chart 2, AMB reported that it had 7,373 insurance company credit ratings, and the total of

the credit ratings in that category reported by all NRSROs was 21,791. Therefore, the percentage of NRSRO insurance

company ratings attributable to AMB was approximately 33.84% (i.e., 7,373 divided by 21,791, expressed as a

percentage), as shown on Chart 3.

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 and 2022 Staff Report on NRSROs, which can be found under “Staff Reports on Nationally Recognized

Statistical Rating Organizations” and the Annual Reports to Congress and the Summary Examination 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/about/divisions-office/office-credit-ratings/reports-and-studies.

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, 2022

Chart 6. Breakdown of Non-Government Securities

Ratings Reported Outstanding by NRSRO as of

December 31, 2022

31.6%

20.2%

6.5%

12.3%

1.6%

5.4%

3.4%

2.9%

0.7%

27.0%

0.4%

1.0%

0.2%

50.1%

1.8%

34.3%

0.3%

0.1%

<0.1%

S&P 50.1%

EJR 0.7%

MIS 31.6%

AMB 0.4%

Fitch 12.3%

JCR 0.2%

DBRS 2.9%

HR 0.1%

KBRA 1.6%

Demotech <0.1%

Percentages have been rounded to the nearest

one-tenth of one percent.

Sources: NRSRO annual certifications for the 2022

calendar year, Item 7A on Form NRSRO.

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 97.4% of all outstanding

government securities ratings.

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

0.1%

S&P 34.3%

EJR 3.4%

MIS 27.0%

AMB 1.8%

Fitch 20.2%

JCR 1.0%

DBRS 6.5%

HR 0.3%

KBRA 5.4%

Demotech 0.1%

Percentages have been rounded to the nearest

one-tenth of one percent.

Sources: NRSRO annual certifications for the 2022

calendar year, Item 7A on Form NRSRO.

NRSRO in its annual certification for the calendar

year ending December 31, 2022.

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 outstanding ratings declines

by 15.8 and 4.6 percentage points, respectively,

when government securities are excluded. Fitch’s

percentage share of outstanding ratings, on the

other hand, increases by 7.9 percentage points

when government securities are excluded. The

percentage share for all the remaining NRSROs

also increases when government securities are

excluded. The government securities category

accounted for 78.6% of the total number of

credit ratings reported across all categories and,

S TA F F R E P O R T

Chart 7. Breakdown of Government Securities

Ratings Reported Outstanding on December 31, 2022

32.83%

10.19%

1.97%

54.36%

0.59%

0.02%

0.03%

S&P 54.36%

KBRA 0.59%

MIS 32.83%

HR 0.03%

Fitch 10.19%

JCR 0.02%

DBRS 1.97%

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 2022

calendar year, Item 7A on Form NRSRO.

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

most concentrated rating category, with the large

NRSROs accounting for 97.4% of all outstanding

government securities ratings.

Further, it is difficult to graphically represent the

relative rating shares of EJR, AMB, HR, JCR,

and Demotech given that they, in the aggregate,

comprise only 1.4% of all outstanding ratings

when government securities are included. When

government securities are excluded, a clearer picture

of the relative percentage shares of the small and

medium NRSROs in the categories in which they are

active can be observed, as illustrated in Chart 6.

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 certifications for the

calendar years ending December 31, 2018, through

December 31, 2022.36

As illustrated in Chart 8, reported non-government

ratings outstanding have 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, 2022, 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 for KBRA over the past five

years, a recent decrease in ratings for DBRS and

EJR, and a modest increase in ratings for the other

medium and small NRSROs. The changes in

outstanding ratings over time for these NRSROs

is more apparent when viewing changes in ratings

outstanding on a scale that includes only the

medium and small NRSROs, as illustrated in

Chart 9.37

Information for Demotech outstanding ratings is not included in Charts 8 and 9. As a recently registered NRSRO,

Demotech first filed its annual certification for the year ending December 31, 2022, and year-over-year data is not

available.

A comparison of Chart 6 in this Report with Chart 6 in Section IV.A.1 of the 2022 Staff Report on NRSROs (available at

https://www.sec.gov/files/2023-ocr-staff-report.pdf) shows that, other than DBRS, each small and medium NRSRO’s total

non-government securities ratings share as of December 31, 2022, remained constant or increased compared to the ratings

shares as of December 31, 2021. The largest percentage share changes were KBRA, whose percentage share increased by

0.9%, and DBRS, whose percentage share declined by 2.0%.

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 (2018-2022)

180,000

160,000

S&P

140,000

Moody’s

120,000

100,000

Fitch

80,000

60,000

40,000

DBRS

KBRA

EJR

AMB

HR JCR

20,000

2018

2019

2020

2021

2022

Sources: NRSRO annual certifications for the 2018-2022 calendar years, Item 7A on Form NRSRO.

Chart 9. Total Non-Government Ratings Issued by Medium and Small NRSROs (2018-2022)

45,000

40,000

35,000

30,000

DBRS

25,000

KBRA

20,000

EJR

15,000

10,000

AMB

5,000

JCR

2018

2019

2020

2021

2022

Sources: NRSRO annual certifications for the 2018-2022 calendar years, Item 7A on Form NRSRO.

S TA F F R E P O R T

Chart 10. Total ABS Ratings Issued by All NRSROs (2018-2022)

60,000

Moody’s

50,000

40,000

S&P

Fitch

30,000

KBRA

20,000

DBRS

10,000

2018

2019

2020

2021

2022

Sources: NRSRO annual certifications for the 2018-2022 calendar years, Item 7A on Form NRSRO.

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.38

S&P have remained fairly steady. The number of

outstanding ratings for Moody’s has not changed

significantly in total, but Moody’s has shown an

increase in ratings outstanding in the past two years.

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 changes

in ratings outstanding in this rating class since

2018. Both DBRS and KBRA have increased

or maintained the number of ratings reported

outstanding over the past five years. During this

same period, the ratings counts for Fitch and

b. NRSRO Analytical Staffing Levels

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.39

The large NRSROs report employing 4,754 credit

analysts (including supervisors), which is approxi-

Demotech, 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 seven outstanding asset-backed

securities ratings as of December 31, 2022. For these reasons, Chart 10 only includes data from DBRS, Fitch, KBRA,

Moody’s, and S&P.

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).

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

Chart 11. NRSRO Credit Analysts and

Credit Analyst Supervisors

Chart 12. NRSRO Fiscal Year Revenue as a

Percentage of Aggregate Reported Revenue

Credit Analysts

(Including Credit

Analyst Supervisors)

Credit Analyst

Supervisors

AMB

160

DBRS

584

157

Demotech

EJR

Fitch

1,372

333

JCR

NRSRO

KBRA

242

Moody’s

1,796

243

S&P

1,586

133

Total

5,897

1,022

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

NRSRO’s annual certification for the 2022 calendar year

filed on or before March 31, 2023.

mately 80.6% of the total number employed by all

of the NRSROs. The small and medium NRSROs,

in the aggregate, employ approximately 19.4% of

all credit analysts employed by NRSROs.40 Total

NRSRO analytical staff increased by about 6%

compared to the information reported in the prior

year annual certifications.

2022

2021

2020

2019

Large NRSROs

91.1%

93.2%

94.1%

93.3%

Medium NRSROs

7.3%

5.6%

5.1%

5.9%

Small NRSROs

1.6%

1.1%

0.8%

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 2022. 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.

c. NRSRO Revenue

Chart 12 shows the percentage of total NRSRO

revenues attributable to the large, medium, and

small NRSROs since 2019.41 Changes to the

composition of certain registered NRSROs and

the registration of an additional NRSRO in recent

years may limit the comparability of the revenue

distribution across the years.42 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

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, 16.3% of all NRSRO analysts in 2020, and 18.4% of all

NRSRO analysts in 2021.

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. Additionally, as a recently registered NRSRO, Demotech first filed the financial report required under

Rule 17g-3(a)(3) for the fiscal year ended in 2022 and is not included in prior years.

S TA F F R E P O R T

has fallen below the level reported for fiscal year

2019. The revenue share of the medium NRSROs

has increased from 2021, reaching a new high

of 7.3% in 2022. The small NRSROs’ share of

overall NRSRO revenue has also increased this

year, growing by 0.5 percentage points in fiscal year

2022 compared with 2021.

■

Further revenue information is available for

NRSROs that are owned by public companies.

The following information is from the 2022 annual

reports of public companies with an ownership

interest in an NRSRO:

■

Moody’s Corporation, which is Moody’s parent

company, reported $2.7 billion in Moody’s

external revenue for 2022, a 29% decrease from

2021. This decrease, according to the report,

was due to muted credit market activity across

all sectors given ongoing market volatility and

central bank actions. The corporate finance

group, financial institutions group, public,

project and infrastructure finance group, and

structured finance group of Moody’s each had a

decrease in revenue compared to 2021 results.43

S&P Global Inc., which is S&P’s parent

company, reported $3.1 billion in S&P’s

revenue for 2022, a 26% decrease from 2021.

This decrease, according to the report, was due

to lower corporate bond ratings revenue, bank

loan ratings revenue, and structured finance

revenue. Non-transaction revenue decreased

primarily due to an unfavorable impact of

foreign exchange rates, a decrease in entity

credit ratings revenue, and lower 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.44

Morningstar, Inc., which is DBRS’s parent

company, reported $236.9 million in revenue

from DBRS, a 12.6% decrease in revenue

from 2021. This decrease, according to the

report, was due to a sharp decrease in credit

issuance in the second half of the year, along

with significant declines in commercial and

residential mortgage-backed securities ratings.

Transaction-based revenue from one-time,

transaction-based fees for ratings on newlyissued securities decreased 11% in 2022.45

Recent regulatory filings show a decline in revenues

at Moody’s and DBRS and a slight increase in

revenue at S&P in the first half of 2023 compared

to the same period in 2022. Moody’s Corporation

reported $1.5 billion in Moody’s external revenue

for the first half of 2023, a 3% decrease compared

with the same period in 2022. This decrease,

according to the report, was due to declines in

bank loan and structured finance issuance resulting

from market volatility relating to macroeconomic

uncertainties, higher borrowing costs, and the

Russia-Ukraine conflict. This decrease in external

revenue was partially offset by an increase in

See Moody’s Corporation, Annual Report on Form 10-K for the year ended December 31, 2022, available at https://www.

sec.gov/Archives/edgar/data/1059556/000105955623000016/mco-20221231.htm.

See S&P Global Inc., Annual Report on Form 10-K for the year ended December 31, 2022, available at https://www.sec.

gov/ix?doc=/Archives/edgar/data/64040/000006404023000058/spgi-20221231.htm.

See Morningstar, Inc., Annual Report on Form 10-K for the year ended December 31, 2022, available at https://www.

sec.gov/ix?doc=/Archives/edgar/data/1289419/000128941923000005/morn-20221231.htm. Transaction-based revenue

from one-time, transaction-based fees for ratings on newly-issued securities represented 57.6% of the revenue generated by

DBRS, with the remainder classified as transaction related revenue or revenue generated by annual fees tied to surveillance,

research, and other services.

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

investment grade corporate debt issuance compared

to suppressed activity in 2022.46

ratings, corporate credit ratings, and revenue

related to data products.48

S&P Global Inc. reported $1.7 billion in revenue

at S&P for the first half of 2023, a 1% increase

compared with the same period in 2022. This

increase, according to the report, was due to

growth in corporate bond ratings revenue driven

by increased investment-grade and high-yield

issuance volumes due to higher refinancing activity.

According to the report, the increase in revenue

was partially offset by lower bank loan ratings

revenue driven by decreased issuance volumes.47

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. The market share data discussed in

this Section IV.A.249 provides information about

ratings issued in 2021, 2022, and the first half

of 2023 and shows that DBRS and KBRA have

achieved meaningful market share percentages in

recent years with respect to certain types of assetbacked securities.50

Morningstar, Inc. reported $101.0 million in DBRS

revenue for the first half of 2023, a 24.9% decrease

compared with the same period in 2022. This

decrease, according to the report, primarily resulted

from a sharp drop in revenue from commercial

mortgage-backed securities ratings. Additionally,

revenue from financial institutions and sovereigns

also declined but were partially mitigated by

growth in revenue from asset-backed securities

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.51

See Moody’s Corporation, Quarterly Report on Form 10-Q for the period ended June 30, 2023, available at https://www.

sec.gov/ix?doc=/Archives/edgar/data/0001059556/000105955623000052/mco-20230630.htm.

See S&P Global Inc., Quarterly Report on Form 10-Q, for the period ended June 30, 2023, available at https://www.sec.

gov/ix?doc=/Archives/edgar/data/64040/000006404023000159/spgi-20230630.htm.

See Morningstar, Inc., Quarterly Report on Form 10-Q for the period ended June 30, 2023, available at https://www.sec.

gov/ix?doc=/Archives/edgar/data/0001289419/000128941923000015/morn-20230630.htm.

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

DBRS and KBRA are the only medium or small NRSROs that actively rate asset-backed securities. Demotech, 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 seven outstanding asset-backed securities

ratings as of December 31, 2022. 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.

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 July 28, 2023, 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 July 28, 2023. 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.

S TA F F R E P O R T

CMBS transactions rated by NRSROs. The charts

include reported market share information for total

non-agency U.S. CMBS transactions,56 U.S. conduit

CMBS transactions, U.S. single-borrower CMBS

transactions, and agency CMBS transactions57 for

the first half of calendar year 2023 and calendar

years 2022 and 2021.58

a. CMBS

Charts 13 through 16 provide information

concerning U.S.52 CMBS53 ratings by NRSROs,

based on information from the Commercial

Mortgage Alert database. NRSRO market share

varies between the conduit CMBS and singleborrower CMBS segments,54 the two segments

that account for most of the non-agency55 U.S.

Chart 13. Rating Agency Market Shares for Total Non-Agency U.S. CMBS Issued in 2021, 2022, and

First Half of 2023

1H-2023

Rank

NRSRO

1H-2023

Issuance

($Mil.

No. of

deals

Market

Share %

($)/(#)

2022

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2021

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

Fitch

10,638

78.0/71.4

38,114

54.3/45.7

57,361

51.9/42.3

Moody’s

7,747

56.8/57.1

46,275

65.9/63.0

38,342

34.7/31.7

KBRA

7,663

56.2/52.4

28,249

40.2/34.6

46,466

42.0/33.1

S&P

4,293

31.5/28.6

17,589

25.0/25.9

17,589

15.9/38.7

DBRS

2,650

19.4/19.0

26,126

37.2/33.3

56,655

51.2/50.0

Total Rated Market

13,638

70,231

110,557

142

Source: Commercial Mortgage Alert’s CMBS database as of July 28, 2023.

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.

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.

“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 percentages for each NRSRO in Charts 13 through 16 reflect the amount rated by the NRSRO as a

percentage of the total amount rated by one or more NRSRO. Market share percentages are provided based on both

dollar amounts of issuance and number of deals rated. Because it is typical for more than one NRSRO to rate a particular

transaction, the sum of the market share percentages may exceed 100% and the sum of the amounts attributed to each

NRSRO may exceed the total rated amount. The source of the data for these charts is the Commercial Mortgage Alert’s

CMBS database as of July 28, 2023.

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

Chart 14. Rating Agency Market Shares for U.S. Conduit CMBS Issued in 2021, 2022, and First Half of 2023

1H-2023

Rank

NRSRO

1H-2023

Issuance

($Mil.

No. of

deals

Market

Share %

($)/(#)

2022

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2021

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

Fitch

6,989

100.0/100.0

23,750

100.0/100.0

31,428

100.0/100.0

KBRA

6,989

100.0/100.0

17,015

71.6/72.0

25,809

82.1/81.3

Moody’s

3,597

51.5/55.6

13,615

57.3/56.0

6,771

21.5/21.9

S&P

3,393

48.5/44.4

9,646

40.6/40.0

22,906

72.9/68.8

DBRS

0.0/0.0

8,889

37.4/36.0

6,984

22.2/21.9

6,989

23,750

31,428

Total Rated Market

Source: Commercial Mortgage Alert’s CMBS database as of July 28, 2023.

Chart 15. Rating Agency Market Shares for U.S. Single-Borrower CMBS Issued in 2021, 2022, and

First Half of 2023

1H-2023

Rank

NRSRO

1H-2023

Issuance

($Mil.

No. of

deals

Market

Share %

($)/(#)

2022

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2021

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

Moody’s

4,150

62.4/58.3

32,383

70.1/65.5

31,571

39.9/34.5

Fitch

3,649

54.9/50.0

14,364

31.1/21.8

25,933

32.8/25.5

DBRS

2,650

39.9/33.3

17,237

37.3/32.7

49,671

62.8/58.2

S&P

900

13.5/16.7

7,943

17.2/20.0

22,979

29.0/30.0

KBRA

674

10.1/16.7

10,957

23.7/16.4

20,657

26.1/19.1

Total Rated Market

6,649

46,204

79,128

110

Source: Commercial Mortgage Alert’s CMBS database as of July 28, 2023.

Chart 16. Rating Agency Market Shares for Agency CMBS Issued in 2021, 2022, and First Half of 2023

1H-2023

Rank

NRSRO

1H-2023

Issuance

($Mil.

No. of

deals

Market

Share %

($)/(#)

2022

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2021

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

KBRA

5,615

87.5/83.3

15,690

64.8/65.0

7,538

31.8/35.0

Fitch

4,570

71.2/66.7

14,240

58.8/60.0

22,469

94.9/95.0

Moody’s

1,847

28.8/33.3

9,989

41.2/40.0

1,216

5.1/5.0

DBRS

802

12.5/16.7

8,539

35.2/35.0

16,147

68.2/65.0

Total Rated Market

6,417

24,229

23,685

Source: Commercial Mortgage Alert’s CMBS database as of July 28, 2023.

S TA F F R E P O R T

Charts 13 through 16 show that in 2021, 2022,

and the first half of 2023 the large NRSROs

generally held a large percentage of the market

shares in rating U.S. CMBS rated transactions,

but DBRS and KBRA achieved significant market

shares as well.

As illustrated in Chart 13, in the first half of 2023,

KBRA had the third-highest market share in the

non-agency U.S. CMBS segment. In 2022, KBRA

and DBRS had the third- and fourth-highest market

shares, respectively. In 2021, DBRS was closely

behind Fitch for the second-highest market share

measured by issuance amount, and KBRA had the

third-highest market share by both issuance amount

and number of deals. KBRA has consistently

attained a market share over 40% by issuance

amount since 2021, and in 2021 KBRA obtained a

higher market share than Moody’s and S&P.

Since 2021, Fitch has maintained the highest

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

rating all rated transactions. However, as illustrated

in Chart 14, KBRA has maintained the secondhighest market share in the U.S. conduit CMBS

segment since 2021. Additionally, as of the first

half of 2023, KBRA has rated all U.S. conduit

CMBS rated transactions, and in 2020 and 2021

DBRS rated over 20% of these transactions.

As illustrated in Chart 15, DBRS achieved significant market share in this segment, achieving the

highest market share in 2021, the second-highest

for 2022, and the third-highest for the first half of

2023. Additionally, KBRA rated nearly 25% of

the issuance amount in 2022 and over 25% of the

issuance amount in 2021.

As illustrated in Chart 16, KBRA had the highest

market share in the agency CMBS segment during

the first half of 2023 and in 2022. Additionally,

DBRS had the second-highest market share in 2021.

b. ABS/MBS/CLO

Charts 17 through 19 provide information

concerning U.S. ABS,59 U.S. MBS,60 and U.S. CLO61

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 2023 and

calendar years 2022 and 2021.62

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 percentages for each NRSRO in Charts 17 through 19 reflect the amount rated by the NRSRO as a

percentage of the total amount rated by one or more NRSRO. Market share percentages are provided based on both

dollar amounts of issuance and number of deals rated. Because it is typical for more than one NRSRO to rate a particular

transaction, the sum of the market share percentages may exceed 100% and the sum of the amounts attributed to each

NRSRO may exceed the total rated amount. The source of the data for these charts is the Asset-Backed Alert’s ABS

database as of July 28, 2023.

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

Chart 17. Rating Agency Market Shares for U.S. ABS Issued in 2021, 2022, and First Half of 2023

1H-2023

Rank

NRSRO

1H-2023

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2022

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2021

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

S&P

79,177

108

59.0/49.3

144,924

182

56.3/42.7

162,345

217

55.1/47.1

Fitch

73,543

54.8/39.3

116,645

145

45.3/34.0

102,453

102

34.8/22.1

Moody’s

65,782

49.0/38.8

130,187

161

50.6/37.8

146,191

154

49.6/33.4

KBRA

26,394

19.7/31.5

56,005

153

21.8/35.9

73,391

188

24.9/40.8

DBRS

19,210

14.3/20.5

35,078

13.6/19.7

68,983

137

23.4/29.7

Total Rated Market

134,120

219

257,420

426

294,687

461

Source: Asset-Backed Alert’s ABS database as of July 28, 2023.

Chart 18. Rating Agency Market Shares for U.S. MBS Issued in 2021, 2022, and First Half of 2023

1H-2023

Rank

NRSRO

1H-2023

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2022

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2021

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

Fitch

21,395

70.8/68.5

48,257

113

43.9/42.3

65,263

149

40.1/41.0

DBRS

15,142

50.1/46.7

39,010

100

35.5/37.5

62,200

115

38.2/31.7

KBRA

8,865

29.3/27.2

57,810

124

52.6/46.4

63,376

143

38.9/39.4

S&P

4,012

13.3/14.1

22,106

20.1/21.7

25,492

15.6/20.9

Moody’s

2,168

7.2/6.5

37,000

33.6/27.0

79,738

140

48.9/38.6

Total Rated Market

30,220

109,984

267

162,937

363

Source: Asset-Backed Alert’s ABS database as of July 28, 2023.

Chart 19. Rating Agency Market Shares for U.S. CLOs Issued in 2021, 2022, and First Half of 2023

1H-2023

Rank

NRSRO

1H-2023

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2022

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

2021

Issuance

($Mil.)

No. of

deals

Market

Share %

($)/(#)

S&P

30,652

56.9/55.5

65,408

140

42.0/41.2

254,633

532

56.1/54.3

Moody’s

29,273

54.3/53.9

93,372

202

59.9/59.4

225,675

506

49.7/51.7

Fitch

22,769

42.2/41.4

75,505

158

48.4/46.5

76,710

158

16.9/16.1

KBRA

740

1.4/2.3

3,590

2.3/2.9

16,342

3.6/3.3

DBRS

0.0/0.0

1,047

0.7/1.2

3,227

0.7/0.4

53,896

128

155,890

340

453,835

979

Total Rated Market

Source: Asset-Backed Alert’s ABS database as of July 28, 2023.

S TA F F R E P O R T

Chart 17 shows that DBRS and KBRA have

achieved and maintained meaningful U.S. ABS

rating market shares, although their relative shares

have declined since 2021. S&P, Moody’s, and Fitch

have consistently achieved the highest market shares

based on issuance amount. KBRA has maintained

market share of approximately 20% or higher since

2021 and DBRS approximately 14% or higher.

Chart 17 presents an overview of NRSRO market

share for ABS overall, but an analysis of the data

underlying the chart shows that the market shares

vary considerably across various types of ABS

products. For example, DBRS and KBRA have

gained significant market share in some newer or

less traditional types of asset-backed securities.

They 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, 2022, and

the first half of 2023, with each rating between

42.7% to 56.6% of the issuance amount of the rated

transactions during this period. Comparatively,

Moody’s, S&P, and Fitch each rated less than 30%

of the issuance amount 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 85.6%

and 100% of the issuance amount of aircraftlease receivables transactions during 2021 and

2022, respectively, while Moody’s, S&P, and Fitch

each rated less than 55% of the issuance amount

over the same time period.64 KBRA also had the

second-highest market share for whole-business

securitizations in 2021, and the highest market

share in 2022 and the first half of 2023, rating

60.2%, 92.1% and 100%, respectively, of the

issuance amount of such transactions.65 DBRS

and KBRA had the two highest market shares

for small business loan transactions in 2021,

2022, and the first half of 2023, with each rating

between 32.6% to 78.7% during this period.

Comparatively, Moody’s, S&P, and Fitch each

rated less than 12.8% of the issuance amount over

the same time period.66

DBRS and KBRA have been able to gain market

share rating certain more traditional types of ABS

as well. For example, DBRS rated 90.2%, 94.1%,

and 82.3% of the issuance amount of student loan

transactions during 2021, 2022, and the first half

of 2023, respectively, which represented the firstor second-highest market share.67

Both DBRS and KBRA have maintained a significant market share in certain auto-related asset-

Asset-Backed Alert’s ABS database indicates that 74 unsecured consumer loan transactions totaling $27.7 billion were

issued in 2021, 75 unsecured consumer loan transactions totaling $26.1 billion were issued in 2022, and 26 unsecured

consumer loan transactions totaling $8.9 billion were issued during the first half of 2023.

Asset-Backed Alert’s ABS database indicates that 16 aircraft-lease receivable transactions totaling $9.2 billion were issued

during 2021, and two aircraft-lease receivable transactions totaling $1.1 billion were issued during 2022.

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

issued during 2021, 14 whole-business securitization transactions totaling $6.3 billion were issued during 2022, and three

whole business securitization transactions totaling $1.6 billion were issued during the first half of 2023.

Asset-Backed Alert’s ABS database indicates that 13 small business loan transactions totaling $2.1 billion were issued

in 2021, 17 small business loan transactions totaling $7.5 billion were issued in 2022, and nine small business loan

transactions totaling $1.2 billion were issued during the first half of 2023.

Asset-Backed Alert’s ABS database indicates that 50 student loan transactions totaling $32.3 billion were issued in 2021,

11 student loan transactions totaling $7.5 billion were issued in 2022, and eight student loan transactions totaling $4.7

billion were issued during the first half of 2023.

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

backed securities. In 2021, 2022, and the first half

of 2023, DBRS rated 33.1%, 30.6%, and 30.4%

of subprime auto loan transactions, respectively.

KBRA also maintained a significant market share;

in 2021, 2022, and the first half of 2023, KBRA

rated 35.1%, 37.8%, and 40.0% of the issuance

amount of subprime auto loan transactions.68

subprime mortgage transactions from 2021 to the

first half of 2023, KBRA rated between 34.5%

and 52.4% and DBRS rated between 26.6% and

34.9% of the issuance amount; for risk transfer

transactions, KBRA rated between 26.1% and

61.3% and DBRS rated between 26.7% and

50.0% of the issuance amount.70

Chart 18 shows that the U.S. MBS segment

remains competitive. DBRS’s market share by

issuance amount went from 38.2% in 2021 to

35.5% in 2022 to 50.1% in the first half of 2023,

while KBRA’s market share by issuance amount

went from 38.9% in 2021 to 52.6% in 2022 to

29.3% in the first half of 2023. 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

and therefore included within the data shown in

Chart 17. For example, in 2021, 2022, and the

first half of 2023, DBRS rated 79.5%, 85.0%, and

95.1% of the issuance amount of re-performing

mortgage transactions, respectively, which represented the first- or second-highest market share.69

Additionally, KBRA and DBRS have maintained

a significant market share in subprime mortgage

transactions and risk transfer transactions. For

Finally, as shown in Chart 19, although DBRS

and KBRA have attained a foothold in the U.S.

CLO segment, their individual market shares have

decreased. In comparison, S&P, Moody’s, and

Fitch have maintained the highest market shares

since 2021.

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 is that 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 require the use of ratings of specified

NRSROs.71 The effect of these requirements can

Asset-Backed Alert’s ABS database indicates that 68 subprime auto loan transactions totaling $43.5 billion were issued

in 2021, 63 subprime auto loan transactions totaling $33.5 billion were issued in 2022, and 41 subprime auto loan

transactions totaling $19.7 billion were issued during the first half of 2023.

Asset-Backed Alert’s ABS database indicates that 32 re-performing mortgage transactions totaling $19.8 billion, were

issued in 2021, 29 re-performing mortgage transactions totaling $14.4 billion were issued in 2022, and ten re-performing

mortgage transactions totaling $4.7 billion were issued during the first half of 2023.

Asset-Backed Alert’s ABS database indicates that 93 subprime mortgage transactions totaling $29.3 billion, and 37 risk transfer

transactions totaling $23.5 billion were issued during 2021, 104 subprime mortgage transactions totaling $37.9 billion, and

26 risk transfer transactions totaling $23.1 billion were issued during 2022, and 43 subprime mortgage transactions totaling

$14.7 billion, and 10 risk transfer transactions totaling $5.9 billion were issued during the first half of 2023.

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.

S TA F F R E P O R T

be to increase the demand for and liquidity of

securities bearing the ratings of specified rating

agencies, which may provide an incentive for

issuers to obtain ratings from the specified agencies.

Historically, many of these guidelines refer to the

ratings from the large NRSROs by name (i.e.,

Fitch, Moody’s, and S&P). Despite reports that

investors are increasingly changing their guidelines

to allow for investments in securities rated by a

wider group of NRSROs,72 investment guidelines

continue to be identified as a factor impacting the

selection of NRSROs to rate certain transactions.73

The inclusion requirements of some fixed income

indices may pose a similar barrier to entry. To

be included in certain of these indices, securities

must be rated by specified NRSROs.74 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.75 For

instance, in 2018, 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.76 Similarly, KBRA testified that

many companies benchmark to such indices for

investment purposes and thus will not purchase

bonds that are index ineligible and not rated by

particular NRSROs.77

Market participants and academics have identified

various other barriers to entry in the credit rating

industry, including economic and regulatory

barriers.78 For instance, when the Commission

proposed new rules and rule amendments (the

NRSRO Amendments) in accordance with the

Dodd-Frank Wall Street Reform and Consumer

Protection Act (Dodd-Frank Act)79 commenters

expressed concerns that certain of the proposed

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, see also S&P, Moody’s Duke

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

See, e.g., Bloomberg Fixed Income Index Methodology, Bloomberg Fixed Income Indices, August 24, 2021; FTSE Fixed

Income Index Guide, FTSE Russell an LSEG Business, June 2023.

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 Written Testimony of Angela Liang, General Counsel and Executive Committee Member, 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 (May 11, 2022), available at https://www.congress.gov/117/meeting/house/114740/witnesses/

HHRG-117-BA16-Wstate-LiangA-20220511.pdf.

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 has continued 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.

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

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

requirements would be burdensome for smaller

NRSROs to implement and could raise barriers to

entry for credit rating agencies to seek to register as

NRSROs.80 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.81

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.82 For instance, certain provisions of

the NRSRO Amendments were designed primarily

to enhance the integrity of how NRSROs determine

credit ratings by improving internal governance

of NRSROs, managing potential principal-agent

problems and conflicts of interest in the credit

rating process, and promoting adherence to the

procedures and methodologies for determining

credit ratings.83 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.84

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.85

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 Exchange Act rules or provisions.86

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

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 board of directors 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/about/divisions-offices/office-credit-ratings/commission-orders.

S TA F F R E P O R T

the credit rating agency industry.”87 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;88

Consolidated information about credit rating

histories;89

Information about material changes and

significant errors in the procedures and

methodologies used to determine credit

ratings;90

Information about specific rating actions;91 and

Clear definitions of each symbol, number, or

score in the rating scale used by the NRSRO.92

NRSROs must also disclose certain information in

connection with each rating action.93 Such information 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.94

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.95 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.96

NRSROs may also provide transparency to the

extent they publish commentaries or research.

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 at no cost.

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.

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

NRSROs publish commentaries and research

that generally include data, analyses, or projections on market sectors and economic outlooks.97

These publications may be helpful to investors

to understand industry trends and the NRSROs’

credit views.

For example, following the failure of Silicon Valley

Bank and other regional banks, NRSROs published

commentaries and research that provided their

credit perspectives on banks and the banking

system more generally. They also published U.S.

bank-related commentaries on economic and

market trends. KBRA published a report examining

the loan portfolios of U.S. community and regional

banks, noting that bank earnings in this sector have

decreased due to net interest margin compression.98

A DBRS report noted that U.S. banks performed

well in the second quarter of 2023, with deposit

outflows having stabilized while asset quality and

capital metrics remained very strong, and that it

does not expect a significant amount of changes to

its bank ratings in the near term.99

NRSROs have continued publishing commentaries

regarding their credit views on the application

and utilization of so-called decentralized finance.

Fitch cited cybersecurity and software risks,

market and liquidity risks, and legal certainty,

among other factors, as considerations for current

and prospective rated issuers’ exposure to crypto

assets and so-called decentralized finance.100 The

application of blockchain-based platforms by

municipal bond offerings were viewed by Moody’s

as enhancing transparency and auditability and

offering potential cost benefits, but also introducing

cyber and regulatory risks.101 S&P published

research presenting its view on certain operational

risks that could influence the credit quality of

issuers exposed to the sector, such as onboarding

risk, bridge and transfer risk, and storage risk.102

NRSROs have also provided their views on

commercial real estate (CRE) related credit risks.

For example, DBRS published a report noting

that commercial mortgage-backed securities loans

backed by office properties have suffered due to

a prolonged post-pandemic return to office and

corporate cost-cutting, but that factors including

property age, rolling leases, and location affect loan

performance.103 In a research report, KBRA found

that rising interest rates have contributed to a rise

in commercial mortgage-backed securities loan

delinquencies and special servicing volumes that it

NRSROs may also make market and economic data separately available.

See KBRA, U.S. Community and Regional Bank Loan Portfolio Evolution and Performance: Historical Perspective and

Context (Aug 29, 2023), available at https://www.kbra.com/publications/DMrRSrhS/u-s-community-and-regional-bankloan-portfolio-evolution-and-performance-historical-perspective-and-context?format=file.

99 See DBRS, U.S. Banks 2Q23: Steady Results in an Unusual Environment; Asset Quality Deterioration Risks Remain (Jul

27, 2023), available at https://www.dbrsmorningstar.com/research/417746/us-banks-2q23-steady-results-in-an-unusualenvironment-asset-quality-deterioration-risks-remain.

100 See Fitch Ratings, Primer on DeFi: Risks and Regulations (Feb 15, 2022), available at https://www.fitchratings.com/

research/banks/primer-on-defi-risks-regulations-15-02-2022.

101 See Moody’s, Blockchain offers prospects for efficiencies, financial benefits in public finance (Mar 23, 2023), available at

https://www.moodys.com/research/Local-Government-US-Blockchain-offers-prospects-for-efficiencies-financial-benefitsSector-In-Depth--PBC_1356311.

102 See S&P, How DeFi’s Operational Risks Could Influence Credit Quality (Jun 7, 2023), available at https://www.spglobal.

com/_assets/documents/ratings/research/101578108.pdf.

103 See DBRS, Modern Office Buildings Built Since 2000 May Benefit as About $11.5 billion in Loans Mature Through 2024

(Sep 20, 2023), available at https://www.dbrsmorningstar.com/research/420839/modern-office-buildings-built-since-2000may-benefit-as-about-dollar115-billion-in-loans-mature-through-2024.

S TA F F R E P O R T

anticipates will continue in the short term, although

CRE performance will vary between and within

metropolitan areas.104 Fitch noted that commercial

mortgage-backed securities’ exposure to lower

quality offices in 2023, especially those with

significant upcoming rollover and located in high

vacancy submarkets, has been a key determinant of

negative rating actions.105

Several of the Staff’s findings and recommendations

in connection with the 2023 Section 15E examinations related to transparency issues. These findings

included disclosure and reporting issues implicating

Rule 17g-7(a), Rule 17g-7(b), and Form NRSRO.

A description of these findings can be found in

Section III.D.3 of this report.

C. CONFLICTS OF INTEREST

NRSROs operate under one or more business

models, each having conflicts of interest. The

primary business model of the NRSROs is the

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

in that the credit rating agency may be influenced

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

than warranted in order to retain the obligors or

issuers as clients. Another business model is the

“subscriber-pay” model, under which investors

pay a subscription fee to access an NRSRO’s

ratings. This model is also subject to conflicts of

interests. For example, an NRSRO may be aware

that an influential subscriber holds a securities

position (long or short) that could be advantaged

if a credit rating upgrade or downgrade causes the

market value of the security to increase or decrease

or that a subscriber invests in newly issued bonds

and may obtain higher yields if the bonds were to

have lower ratings.

In addition to being paid by issuers and subscribers,

some NRSROs are paid to determine ratings by

investors. Frequently these engagements contemplate the issuance of the credit rating on a private

basis. In these cases, the NRSRO provides the

credit rating directly to its client but does not

publish (or make available to all its subscribers)

the credit rating or a report detailing its credit

analysis (although such a report may be provided

to the client with the rating). This business model is

subject to conflicts of interest, which are dependent

on the objectives of the client for obtaining the

rating. For example, an NRSRO may be aware that

an investor client intends to use a credit rating to

establish regulatory capital requirements and could

benefit from receiving a higher credit rating on an

investment it holds.

Section 15E and the related Commission rules

address conflicts of interest.106 For example, Rule

17g-5 identifies certain conflicts of interest that are

prohibited under all circumstances107 and other

conflicts of interest that are prohibited unless an

NRSRO has publicly disclosed the existence of the

conflict and has implemented policies and proce-

104 See KBRA, Metro-Level CRE Loan Distress: Location Still Matters (Sep 11, 2023), available at https://www.kbra.com/

publications/HkFKXhBh/metro-level-cre-loan-distress-location-still-matters?format=file.

105 See Fitch Ratings, U.S. Office CRE Performance to Worsen Amid Rising Market Pressures (Jul 12, 2023) available

at https://www.fitchratings.com/research/structured-finance/us-office-cre-performance-to-worsen-amid-rising-marketpressures-12-07-2023.

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

107 See Rule 17g-5(c).

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

dures reasonably designed to address and manage

such conflict.108

Among the conflicts of interest identified in Rule

17g-5 are conflicts involving individual credit

analysts or other employees of an NRSRO. For

example, an NRSRO is prohibited from issuing or

maintaining a credit rating where an employee of

the NRSRO that participated in determining, or is

responsible for approving, the credit rating directly

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

person that would be subject to the credit rating.109

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

conflict of interest involving persons within an

NRSRO. Under the rule, an NRSRO is prohibited

from issuing or maintaining a credit rating where

a person within the NRSRO who participates in

determining or monitoring the rating, or developing

or approving procedures or methodologies used

for determining the rating, also (i) participates in

sales or marketing activities of the NRSRO or its

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

considerations.110 Other statutory provisions and

Commission rules address conflicts of interest that

may arise when a credit analyst seeks employment

outside the NRSRO. Section 15E(h)(4) requires

each NRSRO to have policies and procedures in

place to provide for an internal “look-back” review

process in order to determine whether any conflict

of interest of a former employee influenced a credit

rating in certain instances.111 Rule 17g-8(c) requires

an NRSRO’s policies and procedures to address

instances in which a “look-back” review determined that a conflict of interest influenced a credit

rating. Such policies and procedures are required to

be reasonably designed to ensure that the NRSRO

will promptly determine whether a credit rating

must be revised and promptly publish a revised

credit rating or an affirmation of the credit rating,

along with certain disclosures about the existence

of the conflict.112

A number of the Staff’s findings and recommendations in connection with the 2023 Section 15E

examinations related to conflict of interest issues.

Among other things, these findings identified

certain instances of lack of separation between

commercial activities and rating determinations

and weaknesses related to policies and procedures

to address and manage conflicts of interest. A

description of these findings and the related recommendations of the Staff can be found in Section

III.D.3 of this report.

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

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

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

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

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

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

112 See Rule 17g-8(c).

S TA F F R E P O R T

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

V. ACTIVITIES RELATING TO NRSROs

A. COMMISSION ORDERS AND

RELEASES

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he Commission issued the following

orders and releases relating to NRSROs or

credit ratings in general in calendar year

2023:

In re DBRS, Inc., Release No. 34-98636 (Sept.

29, 2023).113 The Commission instituted settled

administrative and cease-and-desist proceedings

against DBRS finding violations of Exchange

Act Section 15E(c)(3)(A) and Rules 17g-7(a)

(1)(ii)(B) and 17g-8(a)(1) and (2). The order

finds that DBRS had an ineffective internal

control structure governing implementation of

and adherence to its published procedures and

methodologies for determining credit ratings

for certain multi-borrower CMBS transactions.

Specifically, DBRS made systematic adjustments

to credit enhancement levels implied by its

quantitative predictive model in a manner

not guided or described by DBRS’s published

procedures and methodologies. The order also

finds that DBRS failed to accurately identify

the rating methodology it used to rate certain

single-asset/single-borrower CMBS transactions

and failed to enforce its policies and procedures

requiring credit ratings to be determined and

issued based on approved methodologies.

■

In re DBRS, Inc., Release No. 34-98638

(Sept. 29, 2023).114 The Commission instituted

settled administrative and cease-and-desist

proceedings against DBRS finding violations

of Exchange Act Section 17(a)(1) and Rule

17g-2(b)(7). The violations were in connection

with DBRS’s failure to retain employee text

messages that included discussions of initiating

or determining credit ratings.

In re Kroll Bond Rating Agency, LLC,

Release No. 34-98654 (Sept. 29, 2023).115 The

Commission instituted settled administrative

and cease-and-desist proceedings against KBRA

finding violations of Exchange Act Section

17(a)(1) and Rule 17g-2(b)(7). The violations

were in connection with KBRA’s failure to retain

employee text messages that included discussions of initiating, determining, maintaining,

changing, or withdrawing credit ratings.

Order Granting Temporary Conditional

Exemption for Japan Credit Rating Agency,

Ltd. From Certain 15E(t) Requirements of the

Securities Exchange Act of 1934, Release No.

34-98590 (Sept. 28, 2023).116 On September

28, 2023, the Commission granted JCR a

temporary, conditional exemption from certain

corporate governance requirements under

Exchange Act Section 15E(t). The exemption

expires on October 30, 2026.

113 Available at https://www.sec.gov/files/litigation/admin/2023/34-98636.pdf.

114 Available at https://www.sec.gov/files/litigation/admin/2023/34-98638.pdf.

115 Available at https://www.sec.gov/files/litigation/admin/2023/34-98654.pdf.

116 Available at https://www.sec.gov/files/rules/other/2023/34-98590.pdf.

S TA F F R E P O R T

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Removal of References to Credit Ratings From

Regulation M, Release No. 34-97657 (June 7,

2023), 88 FR 39962 (June 20, 2023).117 The

Commission adopted rule changes to remove

and replace references to credit ratings from

existing exceptions provided in Rule 101

and Rule 102 of Regulation M, a set of rules

that prohibits activities that could artificially

influence the market for an offered security.

B. STAFF PUBLICATION

The Staff issued the following publication relating

to NRSROs or credit ratings in general in calendar

year 2023:

■

Staff Report on Nationally Recognized

Statistical Rating Organizations, dated February

2023 (the 2022 Staff Report), as required

by Section 6 of the Rating Agency Act and

Section 15E(p)(3)(C).118 The 2022 Staff Report

addresses the matters described in the second

paragraph under Section II of this Report for the

period January 1, 2022, through December 31,

2022, and summarizes the essential findings of

the examinations conducted by the Staff under

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

January 1, 2021, to December 31, 2021.

117 Available at https://www.sec.gov/files/rules/final/2023/34-97657.pdf.

118 Available at https://www.sec.gov/files/2023-ocr-staff-report.pdf.

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

VI. APPENDIX:

SUMMARY OF STATUTORY

FRAMEWORK AND RULES

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

govern the registration and oversight

program for credit rating agencies that are

registered with the Commission as NRSROs.

This regulatory regime was established by the

Rating Agency Act119 and amended by the DoddFrank Act.120

The Dodd-Frank Act mandated the creation of the

Office of Credit Ratings (OCR), which is responsible for oversight of credit rating agencies registered

with the Commission as NRSROs. OCR’s Staff

includes professionals with expertise in a variety of

areas that relate to its regulatory mission, such as

corporate, municipal, and structured debt finance.121

Pursuant to the Commission’s regulatory regime

for NRSROs, an NRSRO is required to, among

other things:

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File with the Commission an annual certification

of its Form NRSRO registration,122 promptly

update its filing in certain circumstances,123 and

make its current Form NRSRO filing and most

of its current Form NRSRO Exhibits available

on its public website.124

Disclose certain information, including information concerning the NRSRO’s performance

measurement statistics and its procedures and

methodologies to determine ratings.125

Establish, maintain, enforce, and document an

effective internal control structure governing the

implementation of and adherence to policies,

procedures, and methodologies for determining

credit ratings,126 and retain records of its internal

control structure.127

Consider certain factors with respect to its

establishment, maintenance, enforcement, and

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

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

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

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

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

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

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

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

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

S TA F F R E P O R T

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documentation of an effective internal control

structure.128

Establish, maintain, enforce, and document

policies and procedures reasonably designed

to achieve certain objectives concerning its

development and application of, and disclosures

related to, methodologies and models.129

File an unaudited report containing an

assessment by management of the effectiveness

during the fiscal year of the NRSRO’s internal

control structure governing the implementation of and adherence to policies, procedures,

and methodologies for determining credit

ratings.130 The report must be accompanied

by a signed statement by the NRSRO’s chief

executive officer or an individual performing

similar functions.131

Establish, maintain, enforce, and document

policies and procedures that are reasonably

designed to: assess the probability that an issuer

of a security or money market instrument will

default or fail to make required payments to

investors,132 and ensure that it applies any rating

symbol, number, or score in a manner that is

consistent for all types of obligors, securities,

and money market instruments for which the

symbol, number, or score is used.133

Publish an information disclosure form when

taking a rating action with respect to a rating

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

registered as an NRSRO.134 The information

form must disclose certain information with

128 See, e.g., Rule 17g-8(d)(1)–(4).

129 See, e.g., Rule 17g-8(a)(2)–(5).

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

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

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

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

134 Rule 17g-7(a).

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

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respect to the particular rating action.135

In addition, the NRSRO must attach to

the information disclosure form a signed

statement by a person within the NRSRO with

responsibility for the rating action.136

Make and retain, or retain, certain records,

including a record documenting its established

procedures and methodologies used to

determine credit ratings137 and records related

to its ratings.138 An NRSRO must promptly

furnish to the Commission or its representatives

copies of required records, including English

translations of those records, upon request.139

Establish, maintain, and enforce written policies

and procedures reasonably designed to prevent

the misuse of material non-public information

(MNPI), including the inappropriate

dissemination of MNPI both within and

outside the NRSRO, the inappropriate trading

of securities using MNPI by a person within the

NRSRO, and the inappropriate dissemination

of pending credit rating actions within and

outside the NRSRO before issuing the rating

on the Internet or through another readily

accessible means.140

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Establish, maintain, and enforce written

policies and procedures reasonably designed

to address and manage conflicts of interest.141

Certain conflicts of interest are expressly

prohibited,142 and for other types of conflicts of

interest, the NRSRO must disclose the conflicts

and have policies and procedures in place to

manage them.143

Refrain from engaging in specified unfair,

coercive, or abusive practices.144

Provide information on whether it has in effect a

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

have a code of ethics.145

Establish procedures for the receipt, retention,

and treatment of complaints regarding

credit ratings, models, methodologies, and

compliance with the securities laws and its

policies and procedures developed under

this regulatory regime, and of confidential,

anonymous complaints.146

Designate a compliance officer (the DCO)

responsible for administering policies and

procedures related to MNPI and conflicts

of interest, ensuring compliance with the

securities laws and regulations, and establishing

procedures for handling complaints by

135 Rule 17g-7(a)(1)(ii)(A)-(N) specifies the information that must be disclosed in the information disclosure form.

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

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

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

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

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

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

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

(b)(7).

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

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

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

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

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

144 Rule 17g-6.

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

146 Section 15E(j)(3).

S TA F F R E P O R T

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employees or users of credit ratings.147 The DCO

must submit an annual report to the NRSRO

on the compliance of the NRSRO with the

securities laws and the NRSRO’s policies and

procedures, and the NRSRO must file the report

with the Commission.148

Have a board of directors or similar governing

body (collectively, the Board), certain of

whose members must be independent from

the NRSRO.149 An NRSRO’s Board, or

members thereof, are responsible for exercising

oversight of specified subjects related to the

NRSRO’s rating business and for approving

the procedures and methodologies, including

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

148 Section 15E(j)(5).

149 Section 15E(t)(2).

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

151 Rule 17g-9.

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

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

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qualitative and quantitative data and models,

that the NRSRO uses to determine ratings.150

Establish, maintain, enforce, and document

standards of training, experience, and

competence for the individuals it employs

to participate in the determination of credit

ratings that are reasonably designed to achieve

the objective that the NRSRO produces

accurate credit ratings, and retain a record of

these standards.151

Establish policies and procedures regarding

post-employment activities of certain former

personnel.152

WASHINGTON, DC

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