< Back to H.R. 3890 (111th Congress, 2009–2010)

Text of the Accountability and Transparency in Rating Agencies Act

This bill was introduced on October 28, 2009, in a previous session of Congress, but was not enacted. The text of the bill below is as of Oct 21, 2009 (Introduced).

This is not the latest text of this bill.

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I

111th CONGRESS

1st Session

H. R. 3890

IN THE HOUSE OF REPRESENTATIVES

October 21, 2009

(for himself, Mr. Capuano, Ms. Kilroy, Mr. Cleaver, and Ms. Kosmas) introduced the following bill; which was referred to the Committee on Financial Services

A BILL

To amend the Securities Exchange Act of 1934 to enhance oversight of nationally recognized statistical rating organizations, and for other purposes.

1.

Short title

This title may be cited as the Accountability and Transparency in Rating Agencies Act.

2.

Enhanced regulation of nationally recognized statistical rating organizations

Section 15E of the Securities Exchange Act of 1934 (15 U.S.C. 78o–7) is amended—

(1)

in subsection (a)—

(A)

in paragraph (1)(A), by striking furnish to and inserting file with;

(B)

in paragraph (2)(A), by striking furnished to and inserting filed with; and

(C)

in paragraph (2)(B)(i)(II), by striking furnished to and inserting filed with;

(2)

in subsection (b)—

(A)

in paragraph (1)(A), by striking furnished and inserting filed and by striking furnishing and inserting filing;

(B)

in paragraph (1)(B), by striking furnishing and inserting filing; and

(C)

in the first sentence of paragraph (2), by striking furnish to and inserting file with;

(3)

in subsection (c)—

(A)

paragraph (2)—

(i)

in the second sentence by inserting including the requirements of this section, after Notwithstanding any other provision of law,; and

(ii)

by inserting before the period at the end of the last sentence , provided that this paragraph does not afford a defense against any action or proceeding brought by the Commission to enforce the antifraud provision of the securities laws; and

(B)

by adding at the end the following new paragraph:

(3)

Review of internal processes for determining credit ratings

(A)

In general

The Commission shall review credit ratings issued by, and the policies, procedures, and methodologies employed by, each nationally recognized statistical rating organization to ensure that—

(i)

the nationally recognized statistical rating organization has established and documented a system of internal controls, due diligence and implementation of methodologies for determining credit ratings, taking into consideration such factors as the Commission may prescribe by rule;

(ii)

the nationally recognized statistical rating organization adheres to such system; and

(iii)

the public disclosures of the nationally recognized statistical rating organization required under this section about its ratings, methodologies, and procedures are consistent with such system.

(B)

Manner and frequency

The Commission shall conduct reviews required by this paragraph no less frequently than annually in a manner to be determined by the Commission.

(4)

Provision of information to the commission

Each nationally recognized statistical rating organization shall make available and maintain such records and information, for such a period of time, as the Commission may prescribe, by rule, as necessary for the Commission to conduct the reviews under paragraph (3).

;

(4)

in subsection (d)—

(A)

in the heading, by inserting Fine, after Censure,;

(B)

by striking shall censure and all that follows through revocation and inserting the following: shall censure, fine in accordance with section 21B(a), place limitations on the activities, functions, or operations of, suspend for a period not exceeding 12 months, or revoke the registration of any nationally recognized statistical rating organization (or with respect to any person who is associated, who is seeking to become associated, or, at the time of the alleged misconduct, who was associated or was seeking to become associated with a nationally recognized statistical rating organization, the Commission, by order, shall censure, fine in accordance with section 21B(a), place limitations on the activities or functions of such person, suspend for a period not exceeding 12 months, or bar such person from being associated with a nationally recognized statistical rating organization), if the Commission finds, on the record after notice and opportunity for hearing, that such censure, fine, placing of limitations, bar, suspension, or revocation;

(C)

in paragraph (2), by striking furnished to and inserting filed with;

(D)

in paragraph (4)—

(i)

by striking furnish and inserting file; and

(ii)

by striking or at the end;

(E)

in paragraph (5), by striking the period at the end; and

(F)

by adding at the end the following:

(6)

has failed reasonably to supervise another person who commits a violation of the securities laws or any rules of the Municipal Securities Rulemaking Board if such other person is subject to his or her supervision, except that no person shall be deemed to have failed reasonably to supervise any other person under this paragraph, if—

(A)

there have been established procedures, and a system for applying such procedures, which would reasonably be expected to prevent and detect, insofar as practicable, any such violation by such other person; and

(B)

such person has reasonably discharged the duties and obligations incumbent upon him or her by reason of such procedures and system without reasonable cause to believe that such procedures and system were not being complied with; or

(7)

fails to conduct sufficient surveillance to ensure that credit ratings remain current and reliable, as applicable.

;

(5)

in subsection (e)—

(A)

by striking paragraph (1); and

(B)

in paragraph (2), by striking (2) Commission Authority.— and moving the text of such paragraph to follow the heading of subsection (e);

(6)

by amending subsection (h) to read as follows:

(h)

Corporate governance, organization, and management of conflicts of interest

(1)

Board of directors

(A)

In general

Each nationally recognized statistical rating organization or its parent entity shall have a board of directors.

(B)

Independent directors

At least 1/3 of such board, but no less than 2 of the members of the board of directors, shall be independent directors. In order to be considered independent for purposes of this subsection, a director of a nationally recognized statistical rating organization may not, other than in his or her capacity as a member of the board of directors or any committee thereof—

(i)

accept any consulting, advisory, or other compensatory fee from the nationally recognized statistical rating organization; or

(ii)

be a person associated with the nationally recognized statistical rating organization or with any affiliated company thereof.

(C)

Compensation and term

The compensation of the independent directors shall not be linked to the business performance of the nationally recognized statistical rating organization and shall be arranged so as to ensure the independence of their judgment. The term of office of the independent directors shall be for a pre-agreed fixed period not exceeding 5 years and shall not be renewable.

(D)

Duties

In addition to the overall responsibility of the board of directors, the board shall oversee—

(i)

the establishment, maintenance, and enforcement of policies and procedures for determining credit ratings;

(ii)

the establishment, maintenance, and enforcement of policies and procedures to address, manage, and disclose any conflicts of interest;

(iii)

the effectiveness of the internal control system with respect to policies and procedures for determining credit ratings; and

(iv)

the compensation and promotion policies and practices of the nationally recognized statistical rating organization.

(2)

Organization policies and procedures

Each nationally recognized statistical rating organization shall establish, maintain, and enforce written policies and procedures reasonably designed, taking into consideration the nature of the business of the nationally recognized statistical rating organization and affiliated persons and affiliated companies thereof, to address, manage, and disclose any conflicts of interest that can arise from such business.

(3)

Commission rules

The Commission shall issue rules to prohibit, or require the management and disclosure of, any conflicts of interest relating to the issuance of credit ratings by a nationally recognized statistical rating organization, including—

(A)

conflicts of interest relating to the manner in which a nationally recognized statistical rating organization is compensated by the obligor, or any affiliate of the obligor, for issuing credit ratings or providing related services;

(B)

conflicts of interest relating to the provision of consulting, advisory, or other services by a nationally recognized statistical rating organization, or any person associated with such nationally recognized statistical rating organization, to the obligor, or any affiliate of the obligor;

(C)

disclosure of conflicts of interests relating to business relationships, ownership interests, and affiliations of nationally recognized statistical rating organization board members with obligors, or any other financial or personal interests between a nationally recognized statistical rating organization, or any person associated with such nationally recognized statistical rating organization, and the obligor, or any affiliate of the obligor;

(D)

disclosure of conflicts of interests relating to any affiliation of a nationally recognized statistical rating organization, or any person associated with such nationally recognized statistical rating organization, with any person who underwrites securities, money market instruments, or other instruments that are the subject of a credit rating;

(E)

a requirement that each nationally recognized statistical rating organization disclose on such organization’s website a consolidated report at the end of each fiscal year that shows—

(i)

the percent of net revenue earned by the nationally recognized statistical rating organization or an affiliate of a nationally recognized statistical rating organization, or any person associated with a nationally recognized statistical rating organization, to the extent determined appropriate by the Commission, for that fiscal year for providing services and products other than credit rating services to each person who paid for a credit rating; and

(ii)

the relative standing of each person who paid for a credit rating that was outstanding as of the end of the fiscal year in terms of the amount of net revenue earned by the nationally recognized statistical rating organization attributable to each such person and classified by the highest 5, 10, 25, and 50 percentiles and lowest 50 and 25 percentiles;

(F)

rules providing for the establishment of a system of payment for each nationally recognized statistical rating organization that requires that payments are structured in a manner designed to ensure that the nationally recognized statistical rating organization conducts accurate and reliable surveillance of ratings over time, as applicable, and that incentives for reliable ratings are in place;

(G)

a requirement that a nationally recognized statistical rating organization disclose with the publication of a credit rating the type and number of credit ratings it has provided to the person being rated or affiliates of such person, the fees it has billed for the credit rating, and the aggregate amount of net revenue earned by the nationally recognized statistical rating in the preceding 2 fiscal years attributable to the person being rated and its affiliates; and

(H)

any other potential conflict of interest, as the Commission determines necessary or appropriate in the public interest or for the protection of investors.

(4)

Look-back requirement

(A)

Review by the nationally recognized statistical rating organization

Each nationally recognized statistical rating organization shall establish, maintain, and enforce policies and procedures reasonably designed to ensure that, in any case in which an employee of a person subject to a credit rating of the nationally recognized statistical rating organization or the issuer, underwriter, or sponsor of a security or money market instrument subject to a credit rating of the nationally recognized statistical rating organization was employed by the nationally recognized statistical rating organization and participated in any capacity in determining credit ratings for the person or the securities or money market instruments during the 1-year period preceding the date an action was taken with respect to the credit rating, the nationally recognized statistical rating organization shall—

(i)

conduct a review to determine whether any conflicts of interest of the employee influenced the credit rating; and

(ii)

take action to revise the rating if appropriate, in accordance with such rules as the Commission shall prescribe.

(B)

Review by commission

(i)

In general

The Commission shall conduct periodic reviews of the policies described in subparagraph (A) and the implementation of the policies at each nationally recognized statistical rating organization to ensure they are reasonably designed and implemented to most effectively eliminate conflicts of interest.

(ii)

Timing of reviews

The Commission shall review the code of ethics and conflict of interest policy of each nationally recognized statistical rating organization—

(I)

not less frequently than annually; and

(II)

whenever such policies are materially modified or amended.

(5)

Report to Commission on certain employment transitions

(A)

Report required

Each nationally recognized statistical rating organization shall report to the Commission any case such organization knows or can reasonably be expected to know where a former employee of such organization obtains employment with any issuer, underwriter, or sponsor of a security or money market instrument for which the organization issued a credit rating during the 12-month period prior to such employment, if such employee—

(i)

was an officer of such organization;

(ii)

participated in any capacity in determining credit ratings for such issuer, underwriter, or sponsor; or

(iii)

supervised an employee described un subparagraph (B).

(B)

Public disclosure

Upon receiving such a report, the Commission shall make such information publicly available.

;

(7)

by amending subsection (j) to read as follows:

(j)

Designation of compliance officer

(1)

In general

Each nationally recognized statistical rating organization shall designate an individual to serve as a compliance officer.

(2)

Duties

The compliance officer shall—

(A)

report directly to the board of the nationally recognized statistical rating organization;

(B)

review compliance with policies and procedures to manage conflicts of interest and assess the risk that the compliance (or lack of such compliance) may compromise the integrity of the credit rating process;

(C)

review compliance with internal controls with respect to the procedures and methodologies for determining credit ratings, including quantitative models and qualitative inputs used in the rating process, and assess the risk that such compliance with the internal controls (or lack of such compliance) may compromise the integrity and quality of the credit rating process;

(D)

in consultation with the board of the nationally recognized statistical rating organization, resolve any conflicts of interest that may arise;

(E)

be responsible for administering the policies and procedures required to be established pursuant to this section;

(F)

ensure compliance with securities laws and the rules and regulations issued thereunder, including rules prescribed by the Commission pursuant to this section; and

(G)

shall establish procedures—

(i)

for the receipt, retention, and treatment of complaints regarding credit ratings, models, methodologies, and compliance with the securities laws and the policies and procedures required under this section;

(ii)

for the receipt, retention, and treatment of confidential, anonymous complaints by employees, issuers, and investors;

(iii)

for the remediation of non-compliance issues found during compliance office reviews, the reviews required under paragraph (7), internal or external audit findings, self-reported errors, or through validated complaints; and

(iv)

designed so that ratings that the nationally recognized statistical rating organization disseminates reflect consideration of all information that comes to the attention of and is believed by the nationally recognized statistical rating organization to be relevant, in a manner generally consistent with the nationally recognized statistical rating organization’s published rating methodology, including information which is provided, received, or otherwise obtained from issuer and non-issuer sources, such as investors, the media, and other interested or informed parties.

(3)

Limitations

The compliance officer shall not, while serving in that capacity—

(A)

determine credit ratings;

(B)

participate in the establishment of the procedures and methodologies or the quantitative models and qualitative inputs used to determine credit ratings;

(C)

perform marketing or sales functions; or

(D)

participate in establishing compensation levels, other than for employees working for the compliance officer.

(4)

Annual reports required

The compliance officer shall annually prepare and sign a report on the compliance of the nationally recognized statistical rating organization with the securities laws and such organization’s internal policies and procedures, including its code of ethics and conflict of interest policies, in accordance with rules prescribed by the Commission. Such compliance report shall accompany the financial reports of the nationally recognized statistical rating organization that are required to be filed with the Commission pursuant to this section and shall include a certification that, under penalty of law, the report is accurate and complete.

;

(8)

in subsection (k)—

(A)

by striking , on a confidential basis,;

(B)

by striking Each nationally and inserting the following:

(1)

In general

Each nationally

; and

(C)

by adding at the end the following new paragraph:

(2)

Exception

The Commission may treat as confidential any item filed with the Commission under paragraph (1), the publication of which the Commission determines may have a harmful effect on a nationally recognized statistical rating organization.

;

(9)

in subsection (l)(2)(A)(i), by striking furnished and inserting filed;

(10)

by amending subsection (p) to read as follows:

(p)

Establishment of SEC office

The Commission shall establish an office that administers the rules of the Commission with respect to the practices of nationally recognized statistical rating organizations in determining ratings, in the public interest and for the protection of investors, including rules designed to ensure that credit ratings issued by such registrants are accurate and not unduly influenced by conflicts of interest.

; and

(11)

by adding after subsection (p) the following new subsections:

(q)

Transparency of ratings performance

(1)

Rulemaking required

The Commission shall, by rule, require each nationally recognized statistical rating organization to publicly disclose information on initial ratings and subsequent changes to such ratings for the purpose of providing a gauge of the performance of ratings and allowing investors to compare performance of ratings by different nationally recognized statistical rating organizations.

(2)

Content

The rules of the Commission under this subsection shall require, at a minimum, disclosures that—

(A)

are comparable among nationally recognized statistical rating organizations, so that investors can compare rating performance across rating organizations;

(B)

are clear and informative for a wide range of investor sophistication;

(C)

include performance information over a range of years and for a variety of classes of credit ratings, as determined by the Commission; and

(D)

are published and made freely available by the nationally recognized statistical rating organization, on an easily accessible portion of its website and in written form when requested by investors.

(r)

Credit ratings methodologies

(1)

In general

The Commission shall prescribe rules, in the public interest and for the protection of investors, that require each nationally recognized statistical rating organization to establish, maintain, and enforce written procedures and methodologies that are reasonably designed to—

(A)

ensure that credit ratings are determined using procedures and methodologies, including quantitative models and qualitative inputs that are determined in accordance with the policies and procedures of the nationally recognized statistical rating organization for developing and modifying credit rating procedures and methodologies;

(B)

ensure that when major changes to credit rating procedures and methodologies, including to quantitative models and qualitative inputs, are made, that the changes are applied consistently to all credit ratings to which the changed procedures and methodologies apply and, to the extent the changes are made to credit rating surveillance procedures and methodologies, they are applied to current credit ratings within a time period to be determined by the Commission by rule, and that the reason for the change is publicly disclosed;

(C)

notify persons who have access to the credit ratings of the nationally recognized statistical rating organization, regardless of whether they are made readily accessible for free or a reasonable fee, of the version of a procedure or methodology, including quantitative models and qualitative inputs, used with respect to a particular credit rating;

(D)

notify persons who have access to the credit ratings of the nationally recognized statistical rating organization, regardless of whether they are made readily accessible for free or a reasonable fee, when a change is made to a procedure or methodology, including to quantitative models and qualitative inputs, or an error is identified in a procedure or methodology that may result in credit rating actions, and the likelihood of the change resulting in current credit ratings being subject to rating actions; and

(E)

use credit rating symbols that distinguish credit ratings for structured products from credit ratings for other products that the Commission determines appropriate or necessary in the public interest and for the protection of investors.

(2)

Rating clarity and consistency

(A)

Commission obligation

Subject to subparagraphs (B) and (C), the Commission shall require, by rule, each nationally recognized statistical rating organization to establish, maintain, and enforce written policies and procedures reasonably designed—

(i)

with respect to credit ratings of securities and money market instruments, to assess the risk that investors in securities and money market instruments may not receive payment in accordance with the terms of such securities and instruments;

(ii)

to define clearly any credit rating symbol used by that organization; and

(iii)

to apply such credit rating symbol in a consistent manner for all types of securities and money market instruments.

(B)

Additional credit factors

Nothing in subparagraph (A)—

(i)

prohibits a nationally recognized statistical rating organization from using additional credit factors that are documented and disclosed by the organization and that have a demonstrated impact on the risk an investor in a security or money market instrument will not receive repayment in accordance with the terms of issuance;

(ii)

prohibits a nationally recognized statistical rating organization from considering credit factors that are unique to municipal securities that are not backed by the issuer’s full faith and credit in its assessment of the risk an investor in a security or money market instrument will not receive repayment in accordance with the terms of issuance; or

(iii)

prohibits a nationally recognized statistical rating organization from using an additional symbol with respect to the ratings described in subparagraph (A)(i) for the purpose of distinguishing the ratings of a certain type of security or money market instrument from ratings of any other types of securities or money market instruments.

(C)

Complementary ratings

The Commission shall not impose any requirement under subparagraph (A) that prevents nationally recognized statistical rating organizations from establishing ratings that are complementary to the ratings described in subparagraph (A)(i) and that are created to measure a discrete aspect of the security’s or instrument’s risk.

(s)

Transparency of credit rating methodologies and information reviewed

(1)

In general

The Commission shall require, by rule, a nationally recognized statistical rating organization to include with the publication of each credit rating regardless of whether the credit rating is made readily accessible for free or a reasonable fee a form that discloses information about the assumptions underlying the procedures and methodologies used, and the data relied on, to determine the credit rating in the format prescribed in paragraph (2) and containing the information described in paragraph (3).

(2)

Format

The Commission shall prescribe a form for use under paragraph (1) that—

(A)

is designed in a user-friendly and helpful manner for investors to understand the information contained in the report;

(B)

requires the nationally recognized statistical rating organization to provide the content, as required by paragraph (3), in a manner that is directly comparable across securities; and

(C)

the nationally recognized statistical rating organization certifies the information on the form as true and accurate.

(3)

Content

The Commission shall prescribe a form that requires a nationally recognized statistical rating organization to disclose—

(A)

the main assumptions included in constructing procedures and methodologies, including quantitative models and qualitative inputs and assumptions about the correlation of defaults across obligors used in rating certain structured products;

(B)

the potential shortcomings of the credit ratings, and the types of risks not measured in the credit ratings that the registrant is not commenting on, such as liquidity, market, and other risks;

(C)

information on the certainty of the rating, including information on the reliability, accuracy, and quality of the data relied on in determining the ultimate credit rating and a statement on the extent to which key data inputs for the credit rating were reliable or limited, including any limits on the reach of historical data, limits in accessibility to certain documents or other forms of information that would have better informed the credit rating, and the completeness of certain information considered;

(D)

whether and to what extent third party due diligence services have been utilized, and a description of the information that such third party reviewed in conducting due diligence services;

(E)

a description of relevant data about any obligor, issuer, security, or money market instrument that was used and relied on for the purpose of determining the credit rating;

(F)

a statement containing an overall assessment of the quality of information available and considered in producing a credit rating for a security in relation to the quality of information available to the nationally recognized statistical rating organization in rating similar obligors, securities, or money market instruments;

(G)

an explanation or measure of the potential volatility for the credit rating, including any factors that might lead to a change in the credit rating, and the extent of the change that might be anticipated under different conditions;

(H)

information on the content of the credit rating, including—

(i)

the expected default probability; and

(ii)

the loss given default;

(I)

information on the sensitivity of the rating to assumptions made by the nationally recognized statistical rating organization;

(J)

where applicable, how the nationally recognized statistical rating organization used servicer or remittance reports, and with what frequency, to conduct surveillance of the credit rating; and

(K)

such additional information as may be required by the Commission.

(4)

Due diligence services

(A)

Certification required

In any case in which third-party due diligence services are employed by a nationally recognized statistical rating organization or an issuer or underwriter in connection with the issuance of a credit rating, the firm providing the due diligence services shall provide to the nationally recognized statistical rating organization written certification of such due diligence, which shall be subject to review by the Commission, and the issuer or underwriter shall provide any reports issued by the provider of such due diligence services to the nationally recognized statistical rating organization.

(B)

Format and content

The Commission shall establish the appropriate format and content for written certifications required under subparagraph (A) to ensure that providers of due diligence services have conducted a thorough review of data, documentation, and other relevant information necessary for the nationally recognized statistical rating organization to provide an reliable rating.

(C)

Disclosure of certification

The Commission shall adopt rules requiring a nationally recognized statistical rating organization to disclose to persons who have access to the credit ratings of the nationally recognized statistical rating organization regardless of whether they are made readily accessible for free or a reasonable fee the certification described in subparagraph (A) with the publication of the applicable credit rating in a manner that may permit the persons to determine the adequacy and level of due diligence services provided by the third party.

(t)

Prohibited activities

(1)

In general

Except as provided in paragraph (2), beginning 180 days from the date of enactment of the Accountability, Reliability, and Transparency in Rating Agencies Act, it shall be unlawful for a nationally recognized statistical rating organization, or an affiliate of a nationally recognized statistical rating organization, or any person associated with a nationally recognized statistical rating organization, to the extent determined appropriate by the Commission, that provides a rating for an issuer, underwriter, or placement agent of a security to provide to that issuer, underwriter, or placement agent, any non-rating service that preceded the retention of the nationally recognized statistical rating organization by the issuer, underwriter, or placement agent to provide a rating for the security in question or any assistance provided after such point for which additional compensation is paid directly or indirectly, including—

(A)

risk management advisory services;

(B)

advice or consultation relating to any merger, sales, or disposition of assets of the issuer;

(C)

ancillary assistance, advice, or consulting services unrelated to any specific credit rating issuance; and

(D)

such further activities or services as the Commission may determine as necessary or appropriate in the public interest or for the protection of investors.

(2)

Exemption authority

The Commission may, on a case by case basis, exempt any person, issuer, underwriter, placement agent, or nationally recognized statistical rating organization from the prohibition in subsection (t), to the extent that such exemption is necessary or appropriate in the public interest and is consistent with the protection of investors, and subject to review by the Commission.

.

3.

Standards for private actions

(a)

In general

Section 21D(b)(2) of the Securities Exchange Act of 1934 (15 U.S.C. 78u–4(b)(2)) is amended by inserting before the period at the end of the following: , and in the case of an action brought under this title for money damages against a nationally recognized statistical rating organization, it shall be sufficient for purposes of pleading any required state of mind for purposes of such action that the complaint shall state with particularity facts giving rise to a strong inference that the nationally recognized statistical rating organization knowingly or recklessly violated the securities laws..

(b)

Pleading standard

Section 15E(m) of the Securities Exchange Act of 1934 (15 U.S.C. 78o–7(m)) amended to read as follows:

(m)

application of enforcement provisions; pleading standard in private rights of action

Statements made by nationally recognized statistical rating organizations shall not be deemed forward looking statements for purposes of section 21E. In any private right of action commenced against a nationally recognized statistical rating organization under this title, the same pleading standards with respect to knowledge and recklessness shall apply to the nationally recognized statistical rating organization as would apply to any other person in the same or a similar private right of action against such person.

.

4.

Issuer disclosure of preliminary ratings

The Securities and Exchange Commission shall adopt rules under authority of the Securities Act of 1933 (15 U.S.C. 77a, et seq.) to require issuers to disclose preliminary credit ratings received from nationally recognized statistical rating agencies on structured products and all forms of corporate debt.

5.

Timeline for Regulations

Unless otherwise specified in this Act, the Securities and Exchange Commission shall adopt rules and regulations, as required by the amendments made by this Act, not later than 365 days after the date of enactment.

6.

Federal agency review of reliance on ratings

(a)

Review

Not later than 1 year after the date of the enactment of this Act, each Federal agency and department shall, to the extent applicable, review—

(1)

any regulation issued by such agency or department that requires the use of an assessment of the creditworthiness of a security or money market instrument; and

(2)

its policies and practices with regard to such ratings,

to determine if another measure of creditworthiness is appropriate in order to reduce the reliance of such agency on such ratings, to the extent permitted by law.
(b)

Report

Upon conclusion of the review required under subsection (a), each Federal agency and department shall submit a report to the Congress containing a description of—

(1)

any modification of any regulation such agency or department made following the review required by subsection (a); and

(2)

each regulation issued by such agency or department that requires the use of an assessment of the creditworthiness of a security or money market instrument that such agency or department did not modify pursuant to subsection (a), accompanied by an explanation of why such modification could not be made.

7.

Studies and reports

(a)

GAO Study

(1)

In general

The Comptroller General shall conduct a study of—

(A)

the implementation of this Act and the amendments made by this Act by the Securities and Exchange Commission;

(B)

the appropriateness of relying on ratings for use in Federal, State, and local securities and banking regulations, including for determining capital requirements;

(C)

the effect of liability in private actions arising under the Securities Exchange Act of 1934; and

(D)

alternative means for compensating credit rating agencies that would create incentives for accurate credit ratings and what, if any, statutory changes would be required to permit or facilitate the use of such alternative means of compensation.

(2)

Report

Not later than 30 months after the date of enactment of this Act, the Comptroller General shall submit to Congress and the Securities Exchange Commission, a report containing the findings under the study required by subsection (a).

(b)

SEC Study

The Securities and Exchange Commission shall undertake a study on creating a system whereby nationally recognized statistical rating organizations are assigned on a rotating basis to issuers seeking a credit rating. Not later than 1 year after the date of enactment of this Act, the Securities and Exchange Commission shall transmit to Congress a report containing the findings of the study.