One condition of
equivalence is that the credit rating agencies in the US or other
third country must be subject to registration and subject to effective supervision
and enforcement on an ongoing basis. The US legal and supervisory framework
for credit rating agencies consists of the Credit Rating Agency Reform Act of
2006, noted the Commission, which seeks to improve the quality of ratings in
order to protect investors and in the public interest, by fostering
accountability, transparency, and competition in the credit rating industry. The
operative provisions of the Act became applicable upon the SEC’s adoption in June
2007 of a series of rules implementing a registration and oversight program for
credit rating agencies that register as Nationally Recognized Statistical
Ratings Organizations (NRSRO).
In order to allow the
use of their ratings for regulatory purposes, credit rating agencies have to
register with the SEC and are subsequently supervised by the SEC on an ongoing
basis. The SEC is endowed with a comprehensive range of supervisory powers
allowing it to investigate whether credit rating agencies comply with their
legal obligations, including the power to access documents, to conduct
investigations and to carry out on-site inspections, as well as the power to
require access to records of telephone recordings and electronic communication.
The SEC can exercise these powers not only in respect of credit rating
agencies, but also in respect of other persons involved in credit rating
activities. Section 15E of the Exchange Act requires the SEC to conduct an
examination of each NRSRO at least annually and to report on the findings of
these examinations.
When the SEC has established that an NRSRO is in breach of any
obligation arising from the relevant regulatory framework, said the Commission,
it may adopt a wide range of supervisory measures in order to stop the infringement,
including the power to withdraw the registration, to suspend the use of ratings
for regulatory purposes and to order the credit rating agencies to stop the
infringement. The SEC can also impose severe penalties on credit rating agencies
for breaches of the relevant requirements. Therefore, the Commission found that
NRSROs are subject to effective supervision and enforcement on an on-going
basis. Further, the cooperation agreement concluded between ESMA and the SEC
provides for information exchange with regard to enforcement and supervisory
measures taken against cross-border credit rating agencies.
Another condition of
equivalence is that the regulatory regime in the US or any other third country must
prevent interference by the supervisory authorities and other public
authorities of that third country with the content of credit ratings and
methodologies. In this respect, the Commission found that the SEC and any other
public authority in the US
are prohibited by law from interfering with the substance of credit ratings and
credit rating methodologies.