WASHINGTON
- Today, the House Financial Services Committee passed H.R. 3890, the Accountability and
Transparency in Rating Agencies Act, introduced by Congressman Paul E. Kanjorski (D-PA), Chairman of
the House Financial Services Subcommittee on Capital Markets, Insurance, and
Government Sponsored Enterprises. The Committee passed H.R. 3890, with
considerable bipartisan support, by a vote of 49-14. Yesterday, the
Committee passed Chairman Kanjorski's H.R. 3818, the Private Fund Investment Advisers
Registration Act, by a vote of 67-1. The
Committee is now considering H.R. 3817, the Investor Protection
Act, which Chairman Kanjorski also introduced.
"The Accountability
and Transparency in Rating Agencies Act aims to curb the inappropriate and irresponsible
actions of credit rating agencies which greatly contributed to our current
economic problems," said Chairman Kanjorski.
"This legislation builds on the Administration's proposal and takes
strong steps to reduce conflicts of interest, stem market reliance on credit
rating agencies, and impose a liability standard on the agencies. As gatekeepers to our markets, credit rating
agencies must be held to higher standards.
We need to incentivize them to do their jobs correctly and effectively,
and there must be repercussions if they fall short. This bill will take such steps. I look forward to moving it through the
legislative process."
A summary of H.R. 3890 follows:
- Stronger than the
Administration's Plan on Rating Agencies. The Accountability and
Transparency in Rating Agencies Act expands on the initial credit rating
agency legislation proposed by the Administration in that it:
- Creates
Accountability by Imposing Liability. The bill enhances
the accountability of Nationally Recognized Statistical Rating
Organizations (NRSROs) by clarifying the ability of individuals to sue
NRSROs. The bill also clarifies that the limitation on the
Securities and Exchange Commission (SEC) or any State not to regulate the
substance of credit ratings or ratings methodologies does not afford a
defense against civil anti-fraud actions.
- Duty to Supervise.
The bill adds a new duty to supervise an NRSRO's employees and authorizes
the SEC to sanction supervisors for failing to do so.
- Independent
Board of Directors. The bill requires each NRSRO to have a
board with at least one-third independent directors and these directors
shall oversee policies and procedures aimed at preventing conflicts of
interest and improving internal controls, among other things.
- Mitigate conflicts of
interests. The legislation also contains numerous new
requirements designed to mitigate the conflicts of interest that arise out
of the issuer-pays model for compensating NRSROs. Additionally, the bill
significantly enhances the responsibilities and accountability of NRSRO
compliance officers to address conflicts of interest issues.
- Greater Public
Disclosure. As a result of the bill, investors will gain access
to more information about the internal operations and procedures of
NRSROs. In addition, the public will now learn more about how NRSROs get
paid.
- Revolving-Door
Protections. When certain NRSRO employees go to work for an
issuer, the bill requires the NRSRO to conduct a 1-year look-back into the
ratings in which the employee was involved to make sure that its
procedures were followed and proper ratings were issued. The bill also
requires NRSROs to report to the SEC, and for the SEC to make such reports
public, the names of former NRSRO employees who go to work for issuers.
###
|