by Chairman Christopher Cox, before the U.S. Senate Committee on Banking, Housing and Urban Affairs
Chairman Dodd, Senator Shelby, and Members of the Committee:
I am pleased to be here today to discuss the important work the Securities and Exchange Commission is doing concerning credit rating agencies. In giving the Commission statutory authority in the Credit Rating Agency Reform Act of 2006 (Rating Agency Act) to oversee credit rating agencies registered with the Commission as nationally recognized statistical rating organizations ("NRSROs"), Congress explicitly found that Commission oversight would serve the interest of investor protection by fostering competition, accountability, and transparency in the industry.
The Rating Agency Act grants the Commission broad authority to examine all books and records of an NRSRO. This broad examination authority permits the Commission to examine an NRSRO on a periodic basis for compliance with substantive Commission rules applicable to NRSROs, including rules addressing conflicts of interest and rules prohibiting certain unfair, coercive, or abusive practices. Although the Commission was granted authority to regulate an NRSRO as such, the Act expressly stated that the Commission has no authority to regulate the "substance of the credit ratings or the procedures and methodologies" by which any NRSRO determines credit ratings. In striking this balance, the legislation recognizes an appropriate role for the Commission in promoting competition and policing NRSRO activities such as conflicts of interest, and at the same time declares that it is not our role to second-guess the quality of the rating agencies' ratings.
See full Testimony transcript.
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