[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 3850 Engrossed in Senate (ES)]
109th CONGRESS
2d Session
S. 3850
_______________________________________________________________________
AN ACT
To improve ratings quality for the protection of investors and in the
public interest by fostering accountability, transparency, and
competition in the credit rating agency industry.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Credit Rating Agency Reform Act of
2006''.
SEC. 2. FINDINGS.
Upon the basis of facts disclosed by the record and report of the
Securities and Exchange Commission made pursuant to section 702 of the
Sarbanes-Oxley Act of 2002 (116 Stat. 797), hearings before the
Committee on Banking, Housing, and Urban Affairs of the Senate and the
Committee on Financial Services of the House of Representatives during
the 108th and 109th Congresses, comment letters to the concept releases
and proposed rules of the Commission, and facts otherwise disclosed and
ascertained, Congress finds that credit rating agencies are of national
importance, in that, among other things--
(1) their ratings, publications, writings, analyses, and
reports are furnished and distributed, and their contracts,
subscription agreements, and other arrangements with clients
are negotiated and performed, by the use of the mails and other
means and instrumentalities of interstate commerce;
(2) their ratings, publications, writings, analyses, and
reports customarily relate to the purchase and sale of
securities traded on securities exchanges and in interstate
over-the-counter markets, securities issued by companies
engaged in business in interstate commerce, and securities
issued by national banks and member banks of the Federal
Reserve System;
(3) the foregoing transactions occur in such volume as
substantially to affect interstate commerce, the securities
markets, the national banking system, and the national economy;
(4) the oversight of such credit rating agencies serves the
compelling interest of investor protection;
(5) the 2 largest credit rating agencies serve the vast
majority of the market, and additional competition is in the
public interest; and
(6) the Commission has indicated that it needs statutory
authority to oversee the credit rating industry.
SEC. 3. DEFINITIONS.
(a) Securities Exchange Act of 1934.--Section 3(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)) is amended by adding
at the end the following new paragraphs:
``(60) Credit rating.--The term `credit rating' means an
assessment of the creditworthiness of an obligor as an entity
or with respect to specific securities or money market
instruments.
``(61) Credit rating agency.--The term `credit rating
agency' means any person--
``(A) engaged in the business of issuing credit
ratings on the Internet or through another readily
accessible means, for free or for a reasonable fee, but
does not include a commercial credit reporting company;
``(B) employing either a quantitative or
qualitative model, or both, to determine credit
ratings; and
``(C) receiving fees from either issuers,
investors, or other market participants, or a
combination thereof.
``(62) Nationally recognized statistical rating
organization.--The term `nationally recognized statistical
rating organization' means a credit rating agency that--
``(A) has been in business as a credit rating
agency for at least the 3 consecutive years immediately
preceding the date of its application for registration
under section 15E;
``(B) issues credit ratings certified by qualified
institutional buyers, in accordance with section
15E(a)(1)(B)(ix), with respect to--
``(i) financial institutions, brokers, or
dealers;
``(ii) insurance companies;
``(iii) corporate issuers;
``(iv) issuers of asset-backed securities
(as that term is defined in section 1101(c) of
part 229 of title 17, Code of Federal
Regulations, as in effect on the date of
enactment of this paragraph);
``(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); and
``(C) is registered under section 15E.
``(63) Person associated with a nationally recognized
statistical rating organization.--The term `person associated
with' a nationally recognized statistical rating organization
means any partner, officer, director, or branch manager of a
nationally recognized statistical rating organization (or any
person occupying a similar status or performing similar
functions), any person directly or indirectly controlling,
controlled by, or under common control with a nationally
recognized statistical rating organization, or any employee of
a nationally recognized statistical rating organization.
``(64) Qualified institutional buyer.--The term `qualified
institutional buyer' has the meaning given such term in section
230.144A(a) of title 17, Code of Federal Regulations, or any
successor thereto.''.
(b) Applicable Definitions.--As used in this Act--
(1) the term ``Commission'' means the Securities and
Exchange Commission; and
(2) the term ``nationally recognized statistical rating
organization'' has the same meaning as in section 3(a)(62) of
the Securities Exchange Act of 1934, as added by this Act.
SEC. 4. REGISTRATION OF NATIONALLY RECOGNIZED STATISTICAL RATING
ORGANIZATIONS.
(a) Amendment.--The Securities Exchange Act of 1934 is amended by
inserting after section 15D (15 U.S.C. 78o-6) the following new
section:
``SEC. 15E. REGISTRATION OF NATIONALLY RECOGNIZED STATISTICAL RATING
ORGANIZATIONS.
``(a) Registration Procedures.--
``(1) Application for registration.--
``(A) In general.--A credit rating agency that
elects to be treated as a nationally recognized
statistical rating organization for purposes of this
title (in this section referred to as the `applicant'),
shall furnish to the Commission an application for
registration, in such form as the Commission shall
require, by rule or regulation issued in accordance
with subsection (n), and containing the information
described in subparagraph (B).
``(B) Required information.--An application for
registration under this section shall contain
information regarding--
``(i) credit ratings performance
measurement statistics over short-term, mid-
term, and long-term periods (as applicable) of
the applicant;
``(ii) the procedures and methodologies
that the applicant uses in determining credit
ratings;
``(iii) policies or procedures adopted and
implemented by the applicant to prevent the
misuse, in violation of this title (or the
rules and regulations hereunder), of material,
nonpublic information;
``(iv) the organizational structure of the
applicant;
``(v) whether or not the applicant has in
effect a code of ethics, and if not, the
reasons therefor;
``(vi) any conflict of interest relating to
the issuance of credit ratings by the
applicant;
``(vii) the categories described in any of
clauses (i) through (v) of section 3(a)(62)(B)
with respect to which the applicant intends to
apply for registration under this section;
``(viii) on a confidential basis, a list of
the 20 largest issuers and subscribers that use
the credit rating services of the applicant, by
amount of net revenues received therefrom in
the fiscal year immediately preceding the date
of submission of the application;
``(ix) on a confidential basis, as to each
applicable category of obligor described in any
of clauses (i) through (v) of section
3(a)(62)(B), written certifications described
in subparagraph (C), except as provided in
subparagraph (D); and
``(x) any other information and documents
concerning the applicant and any person
associated with such applicant as the
Commission, by rule, may prescribe as necessary
or appropriate in the public interest or for
the protection of investors.
``(C) Written certifications.--Written
certifications required by subparagraph (B)(ix)--
``(i) shall be provided from not fewer than
10 qualified institutional buyers, none of
which is affiliated with the applicant;
``(ii) may address more than one category
of obligors described in any of clauses (i)
through (v) of section 3(a)(62)(B);
``(iii) shall include not fewer than 2
certifications for each such category of
obligor; and
``(iv) shall state that the qualified
institutional buyer--
``(I) meets the definition of a
qualified institutional buyer under
section 3(a)(64); and
``(II) has used the credit ratings
of the applicant for at least the 3
years immediately preceding the date of
the certification in the subject
category or categories of obligors.
``(D) Exemption from certification requirement.--A
written certification under subparagraph (B)(ix) is not
required with respect to any credit rating agency which
has received, or been the subject of, a no-action
letter from the staff of the Commission prior to August
2, 2006, stating that such staff would not recommend
enforcement action against any broker or dealer that
considers credit ratings issued by such credit rating
agency to be ratings from a nationally recognized
statistical rating organization.
``(E) Limitation on liability of qualified
institutional buyers.--No qualified institutional buyer
shall be liable in any private right of action for any
opinion or statement expressed in a certification made
pursuant to subparagraph (B)(ix).
``(2) Review of application.--
``(A) Initial determination.--Not later than 90
days after the date on which the application for
registration is furnished to the Commission under
paragraph (1) (or within such longer period as to which
the applicant consents) the Commission shall--
``(i) by order, grant such registration for
ratings in the subject category or categories
of obligors, as described in clauses (i)
through (v) of section 3(a)(62)(B); or
``(ii) institute proceedings to determine
whether registration should be denied.
``(B) Conduct of proceedings.--
``(i) Content.--Proceedings referred to in
subparagraph (A)(ii) shall--
``(I) include notice of the grounds
for denial under consideration and an
opportunity for hearing; and
``(II) be concluded not later than
120 days after the date on which the
application for registration is
furnished to the Commission under
paragraph (1).
``(ii) Determination.--At the conclusion of
such proceedings, the Commission, by order,
shall grant or deny such application for
registration.
``(iii) Extension authorized.--The
Commission may extend the time for conclusion
of such proceedings for not longer than 90
days, if it finds good cause for such extension
and publishes its reasons for so finding, or
for such longer period as to which the
applicant consents.
``(C) Grounds for decision.--The Commission shall
grant registration under this subsection--
``(i) if the Commission finds that the
requirements of this section are satisfied; and
``(ii) unless the Commission finds (in
which case the Commission shall deny such
registration) that--
``(I) the applicant does not have
adequate financial and managerial
resources to consistently produce
credit ratings with integrity and to
materially comply with the procedures
and methodologies disclosed under
paragraph (1)(B) and with subsections
(g), (h), (i), and (j); or
``(II) if the applicant were so
registered, its registration would be
subject to suspension or revocation
under subsection (d).
``(3) Public availability of information.--Subject to
section 24, the Commission shall, by rule, require a nationally
recognized statistical rating organization, upon the granting
of registration under this section, to make the information and
documents submitted to the Commission in its completed
application for registration, or in any amendment submitted
under paragraph (1) or (2) of subsection (b), publicly
available on its website, or through another comparable,
readily accessible means, except as provided in clauses (viii)
and (ix) of paragraph (1)(B).
``(b) Update of Registration.--
``(1) Update.--Each nationally recognized statistical
rating organization shall promptly amend its application for
registration under this section if any information or document
provided therein becomes materially inaccurate, except that a
nationally recognized statistical rating organization is not
required to amend--
``(A) the information required to be furnished
under subsection (a)(1)(B)(i) by furnishing information
under this paragraph, but shall amend such information
in the annual submission of the organization under
paragraph (2) of this subsection; or
``(B) the certifications required to be provided
under subsection (a)(1)(B)(ix) by furnishing
information under this paragraph.
``(2) Certification.--Not later than 90 days after the end
of each calendar year, each nationally recognized statistical
rating organization shall furnish to the Commission an
amendment to its registration, in such form as the Commission,
by rule, may prescribe as necessary or appropriate in the
public interest or for the protection of investors--
``(A) certifying that the information and documents
in the application for registration of such nationally
recognized statistical rating organization (other than
the certifications required under subsection
(a)(1)(B)(ix)) continue to be accurate; and
``(B) listing any material change that occurred to
such information or documents during the previous
calendar year.
``(c) Accountability for Ratings Procedures.--
``(1) Authority.--The Commission shall have exclusive
authority to enforce the provisions of this section in
accordance with this title with respect to any nationally
recognized statistical rating organization, if such nationally
recognized statistical rating organization issues credit
ratings in material contravention of those procedures relating
to such nationally recognized statistical rating organization,
including procedures relating to the prevention of misuse of
nonpublic information and conflicts of interest, that such
nationally recognized statistical rating organization--
``(A) includes in its application for registration
under subsection (a)(1)(B)(ii); or
``(B) makes and disseminates in reports pursuant to
section 17(a) or the rules and regulations thereunder.
``(2) Limitation.--The rules and regulations that the
Commission may prescribe pursuant to this title, as they apply
to nationally recognized statistical rating organizations,
shall be narrowly tailored to meet the requirements of this
title applicable to nationally recognized statistical rating
organizations. Notwithstanding any other provision of law,
neither the Commission nor any State (or political subdivision
thereof) may regulate the substance of credit ratings or the
procedures and methodologies by which any nationally recognized
statistical rating organization determines credit ratings.
``(d) Censure, Denial, or Suspension of Registration; Notice and
Hearing.--The Commission, by order, shall censure, 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 if the Commission finds, on
the record after notice and opportunity for hearing, that such censure,
placing of limitations, suspension, or revocation is necessary for the
protection of investors and in the public interest and that such
nationally recognized statistical rating organization, or any person
associated with such an organization, whether prior to or subsequent to
becoming so associated--
``(1) has committed or omitted any act, or is subject to an
order or finding, enumerated in subparagraph (A), (D), (E),
(H), or (G) of section 15(b)(4), has been convicted of any
offense specified in section 15(b)(4)(B), or is enjoined from
any action, conduct, or practice specified in subparagraph (C)
of section 15(b)(4), during the 10-year period preceding the
date of commencement of the proceedings under this subsection,
or at any time thereafter;
``(2) has been convicted during the 10-year period
preceding the date on which an application for registration is
furnished to the Commission under this section, or at any time
thereafter, of--
``(A) any crime that is punishable by imprisonment
for 1 or more years, and that is not described in
section 15(b)(4)(B); or
``(B) a substantially equivalent crime by a foreign
court of competent jurisdiction;
``(3) is subject to any order of the Commission barring or
suspending the right of the person to be associated with a
nationally recognized statistical rating organization;
``(4) fails to furnish the certifications required under
subsection (b)(2); or
``(5) fails to maintain adequate financial and managerial
resources to consistently produce credit ratings with
integrity.
``(e) Termination of Registration.--
``(1) Voluntary withdrawal.--A nationally recognized
statistical rating organization may, upon such terms and
conditions as the Commission may establish as necessary in the
public interest or for the protection of investors, withdraw
from registration by furnishing a written notice of withdrawal
to the Commission.
``(2) Commission authority.--In addition to any other
authority of the Commission under this title, if the Commission
finds that a nationally recognized statistical rating
organization is no longer in existence or has ceased to do
business as a credit rating agency, the Commission, by order,
shall cancel the registration under this section of such
nationally recognized statistical rating organization.
``(f) Representations.--
``(1) Ban on representations of sponsorship by united
states or agency thereof.--It shall be unlawful for any
nationally recognized statistical rating organization to
represent or imply in any manner whatsoever that such
nationally recognized statistical rating organization has been
designated, sponsored, recommended, or approved, or that the
abilities or qualifications thereof have in any respect been
passed upon, by the United States or any agency, officer, or
employee thereof.
``(2) Ban on representation as nrsro of unregistered credit
rating agencies.--It shall be unlawful for any credit rating
agency that is not registered under this section as a
nationally recognized statistical rating organization to state
that such credit rating agency is a nationally recognized
statistical rating organization registered under this title.
``(3) Statement of registration under securities exchange
act of 1934 provisions.--No provision of paragraph (1) shall be
construed to prohibit a statement that a nationally recognized
statistical rating organization is a nationally recognized
statistical rating organization under this title, if such
statement is true in fact and if the effect of such
registration is not misrepresented.
``(g) Prevention of Misuse of Nonpublic Information.--
``(1) 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 such nationally recognized
statistical rating organization, to prevent the misuse in
violation of this title, or the rules or regulations hereunder,
of material, nonpublic information by such nationally
recognized statistical rating organization or any person
associated with such nationally recognized statistical rating
organization.
``(2) Commission authority.--The Commission shall issue
final rules in accordance with subsection (n) to require
specific policies or procedures that are reasonably designed to
prevent misuse in violation of this title (or the rules or
regulations hereunder) of material, nonpublic information.
``(h) Management of Conflicts of Interest.--
``(1) 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 such nationally recognized
statistical rating organization and affiliated persons and
affiliated companies thereof, to address and manage any
conflicts of interest that can arise from such business.
``(2) Commission authority.--The Commission shall issue
final rules in accordance with subsection (n) 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, without limitation, conflicts of interest relating
to--
``(A) 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) 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) business relationships, ownership interests,
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) any affiliation of a nationally recognized
statistical rating organization, or any person
associated with such nationally recognized statistical
rating organization, with any person that underwrites
the securities or money market instruments that are the
subject of a credit rating; and
``(E) any other potential conflict of interest, as
the Commission deems necessary or appropriate in the
public interest or for the protection of investors.
``(i) Prohibited Conduct.--
``(1) Prohibited acts and practices.--The Commission shall
issue final rules in accordance with subsection (n) to prohibit
any act or practice relating to the issuance of credit ratings
by a nationally recognized statistical rating organization that
the Commission determines to be unfair, coercive, or abusive,
including any act or practice relating to--
``(A) conditioning or threatening to condition the
issuance of a credit rating on the purchase by the
obligor or an affiliate thereof of other services or
products, including pre-credit rating assessment
products, of the nationally recognized statistical
rating organization or any person associated with such
nationally recognized statistical rating organization;
``(B) lowering or threatening to lower a credit
rating on, or refusing to rate, securities or money
market instruments issued by an asset pool or as part
of any asset-backed or mortgage-backed securities
transaction, unless a portion of the assets within such
pool or part of such transaction, as applicable, also
is rated by the nationally recognized statistical
rating organization; or
``(C) modifying or threatening to modify a credit
rating or otherwise departing from its adopted
systematic procedures and methodologies in determining
credit ratings, based on whether the obligor, or an
affiliate of the obligor, purchases or will purchase
the credit rating or any other service or product of
the nationally recognized statistical rating
organization or any person associated with such
organization.
``(2) Rule of construction.--Nothing in paragraph (1), or
in any rules or regulations adopted thereunder, may be
construed to modify, impair, or supersede the operation of any
of the antitrust laws (as defined in the first section of the
Clayton Act, except that such term includes section 5 of the
Federal Trade Commission Act, to the extent that such section 5
applies to unfair methods of competition).
``(j) Designation of Compliance Officer.--Each nationally
recognized statistical rating organization shall designate an
individual responsible for administering the policies and procedures
that are required to be established pursuant to subsections (g) and
(h), and for ensuring compliance with the securities laws and the rules
and regulations thereunder, including those promulgated by the
Commission pursuant to this section.
``(k) Statements of Financial Condition.--Each nationally
recognized statistical rating organization shall, on a confidential
basis, furnish to the Commission, at intervals determined by the
Commission, such financial statements, certified (if required by the
rules or regulations of the Commission) by an independent public
accountant, and information concerning its financial condition, as the
Commission, by rule, may prescribe as necessary or appropriate in the
public interest or for the protection of investors.
``(l) Sole Method of Registration.--
``(1) In general.--On and after the effective date of this
section, a credit rating agency may only be registered as a
nationally recognized statistical rating organization for any
purpose in accordance with this section.
``(2) Prohibition on reliance on no-action relief.--On and
after the effective date of this section--
``(A) an entity that, before that date, received
advice, approval, or a no-action letter from the
Commission or staff thereof to be treated as a
nationally recognized statistical rating organization
pursuant to the Commission rule at section 240.15c3-1
of title 17, Code of Federal Regulations, may represent
itself or act as a nationally recognized statistical
rating organization only--
``(i) during Commission consideration of
the application, if such entity has furnished
an application for registration under this
section; and
``(ii) on and after the date of approval of
its application for registration under this
section; and
``(B) the advice, approval, or no-action letter
described in subparagraph (A) shall be void.
``(3) Notice to other agencies.--Not later than 30 days
after the date of enactment of this section, the Commission
shall give notice of the actions undertaken pursuant to this
section to each Federal agency which employs in its rules and
regulations the term `nationally recognized statistical rating
organization' (as that term is used under Commission rule 15c3-
1 (17 C.F.R. 240.15c3-1), as in effect on the date of enactment
of this section).
``(m) Rules of Construction.--
``(1) No waiver of rights, privileges, or defenses.--
Registration under and compliance with this section does not
constitute a waiver of, or otherwise diminish, any right,
privilege, or defense that a nationally recognized statistical
rating organization may otherwise have under any provision of
State or Federal law, including any rule, regulation, or order
thereunder.
``(2) No private right of action.--Nothing in this section
may be construed as creating any private right of action, and
no report furnished by a nationally recognized statistical
rating organization in accordance with this section or section
17 shall create a private right of action under section 18 or
any other provision of law.
``(n) Regulations.--
``(1) New provisions.--Such rules and regulations as are
required by this section or are otherwise necessary to carry
out this section, including the application form required under
subsection (a)--
``(A) shall be issued by the Commission in final
form, not later than 270 days after the date of
enactment of this section; and
``(B) shall become effective not later than 270
days after the date of enactment of this section.
``(2) Review of existing regulations.--Not later than 270
days after the date of enactment of this section, the
Commission shall--
``(A) review its existing rules and regulations
which employ the term `nationally recognized
statistical rating organization' or `NRSRO'; and
``(B) amend or revise such rules and regulations in
accordance with the purposes of this section, as the
Commission may prescribe as necessary or appropriate in
the public interest or for the protection of investors.
``(o) NRSROs Subject To Commission Authority.--
``(1) In general.--No provision of the laws of any State or
political subdivision thereof requiring the registration,
licensing, or qualification as a credit rating agency or a
nationally recognized statistical rating organization shall
apply to any nationally recognized statistical rating
organization or person employed by or working under the control
of a nationally recognized statistical rating organization.
``(2) Limitation.--Nothing in this subsection prohibits the
securities commission (or any agency or office performing like
functions) of any State from investigating and bringing an
enforcement action with respect to fraud or deceit against any
nationally recognized statistical rating organization or person
associated with a nationally recognized statistical rating
organization.
``(p) Applicability.--This section, other than subsection (n),
which shall apply on the date of enactment of this section, shall apply
on the earlier of--
``(1) the date on which regulations are issued in final
form under subsection (n)(1); or
``(2) 270 days after the date of enactment of this
section.''.
(b) Conforming Amendments.--
(1) Securities exchange act of 1934.--The Securities
Exchange Act of 1934 (15 U.S.C. 78 et seq.) is amended--
(A) in section 15(b)(4) (15 U.S.C. 78o(b)(4))--
(i) in subparagraph (B)(ii), by inserting
``nationally recognized statistical rating
organization,'' after ``transfer agent,''; and
(ii) in subparagraph (C), by inserting
``nationally recognized statistical rating
organization,'' after ``transfer agent,''; and
(B) in section 21B(a) (15 U.S.C. 78u-2(a)), by
inserting ``15E,'' after ``15C,''.
(2) Investment company act of 1940.--The Investment Company
Act of 1940 (15 U.S.C. 80a et seq.) is amended--
(A) in section 2(a) (15 U.S.C. 80a-2(a)), by adding
at the end the following new paragraph:
``(53) The term `credit rating agency' has the same meaning
as in section 3 of the Securities Exchange Act of 1934.''; and
(B) in section 9(a) (15 U.S.C. 80a-9(a))--
(i) in paragraph (1), by inserting ``credit
rating agency,'' after ``transfer agent,''; and
(ii) in paragraph (2), by inserting
``credit rating agency,'' after ``transfer
agent,''.
(3) Investment advisers act of 1940.--The Investment
Advisers Act of 1940 (15 U.S.C. 80b et seq.) is amended--
(A) in section 202(a) (15 U.S.C. 80b-2(a)), by
adding at the end the following new paragraph:
``(28) The term `credit rating agency' has the same meaning
as in section 3 of the Securities Exchange Act of 1934.'';
(B) in section 202(a)(11) (15 U.S.C. 80b-2(a)(11)),
by striking ``or (F)'' and inserting the following:
``(F) any nationally recognized statistical rating
organization, as that term is defined in section
3(a)(62) of the Securities Exchange Act of 1934, unless
such organization engages in issuing recommendations as
to purchasing, selling, or holding securities or in
managing assets, consisting in whole or in part of
securities, on behalf of others; or (G)''; and
(C) in section 203(e) (15 U.S.C. 80b-3(e))--
(i) in paragraph (2)(B), by inserting
``credit rating agency,'' after ``transfer
agent,''; and
(ii) in paragraph (4), by inserting
``credit rating agency,'' after ``transfer
agent,''.
(4) Housing and community development act of 1992.--Section
1319 of the Housing and Community Development Act of 1992 (12
U.S.C. 4519) is amended by striking ``effectively'' and all
that follows through ``broker-dealers'' and inserting ``that is
a nationally recognized statistical rating organization, as
such term is defined in section 3(a) of the Securities Exchange
Act of 1934''.
(5) Higher education act of 1965.--Section 439(r)(15)(A) of
the Higher Education Act of 1965 (20 U.S.C. 1087-2(r)(15)(A))
is amended by striking ``means any entity recognized as such by
the Securities and Exchange Commission'' and inserting ``means
any nationally recognized statistical rating organization, as
that term is defined in section 3(a) of the Securities Exchange
Act of 1934''.
(6) Title 23.--Section 181(11) of title 23, United States
Code, is amended by striking ``identified by the Securities and
Exchange Commission as a nationally recognized statistical
rating organization'' and inserting ``registered with the
Securities and Exchange Commission as a nationally recognized
statistical rating organization, as that term is defined in
section 3(a) of the Securities Exchange Act of 1934''.
SEC. 5. ANNUAL AND OTHER REPORTS.
Section 17(a)(1) of the Securities Exchange Act of 1934 (15 U.S.C.
78q(a)(1)) is amended--
(1) by inserting ``nationally recognized statistical rating
organization,'' after ``registered transfer agent,''; and
(2) by adding at the end the following: ``Any report that a
nationally recognized statistical rating organization is
required by Commission rules under this paragraph to make and
disseminate to the Commission shall be deemed furnished to the
Commission.''.
SEC. 6. COMMISSION ANNUAL REPORT.
The Commission shall submit an annual report to the Committee on
Banking, Housing, and Urban Affairs of the Senate and the Committee on
Financial Services of the House of Representatives that, with respect
to the year to which the report relates--
(1) identifies applicants for registration under section
15E of the Securities Exchange Act of 1934, as added by this
Act;
(2) specifies the number of and actions taken on such
applications; and
(3) specifies the views of the Commission on the state of
competition, transparency, and conflicts of interest among
nationally recognized statistical rating organizations.
SEC. 7. GAO STUDY AND REPORT REGARDING NATIONALLY RECOGNIZED
STATISTICAL RATING ORGANIZATIONS.
(a) Study Required.--The Comptroller General of the United States
shall conduct a study--
(1) to determine the impact of this Act and the amendments
made by this Act on--
(A) the quality of credit ratings issued by
nationally recognized statistical ratings
organizations;
(B) the financial markets;
(C) competition among credit rating agencies;
(D) the incidence of inappropriate conflicts of
interest and sales practices by nationally recognized
statistical rating organizations;
(E) the process for registering as a nationally
recognized statistical rating organization; and
(F) such other matters relevant to the
implementation of this Act and the amendments made by
this Act, as the Comptroller General deems necessary to
bring to the attention of the Congress;
(2) to identify problems, if any, that have resulted from
the implementation of this Act and the amendments made by this
Act; and
(3) to recommend solutions, including any legislative or
regulatory solutions, to any problems identified under
paragraphs (1) and (2).
(b) Report Required.--Not earlier than 3 years nor later than 4
years after the date of enactment of this Act, the Comptroller General
shall submit a report on the results of the study required by this
section to the Committee on Banking, Housing, and Urban Affairs of the
Senate and the Committee on Financial Services of the House of
Representatives.
Passed the Senate September 22, 2006.
Attest:
Secretary.
109th CONGRESS
2d Session
S. 3850
_______________________________________________________________________
AN ACT
To improve ratings quality for the protection of investors and in the
public interest by fostering accountability, transparency, and
competition in the credit rating agency industry.