SEC published two staff reports on the important work of the Office of Credit Ratings in examining and monitoring on the nationally recognized statistical rating organizations (NRSROs). Among others, the annual report covers developments in the competitive landscape for credit rating agencies. The reports indicate that the NRSROs made certain improvements in response to the examinations by staff and that the range of NRSROs issuing commentaries, along with the topics covered by those commentaries, has expanded.
The nine credit rating agencies registered in the US as NRSROs, as of January 15, 2020, are A.M. Best Rating Services Inc, DBRS Inc, Egan-Jones Ratings Company, Fitch Ratings Inc, HR Ratings de México S.A. de C.V., Japan Credit Rating Agency Ltd, Kroll Bond Rating Agency Inc, Moody’s Investors Service Inc, and S&P Global Ratings. With respect to these agencies, the report on NRSRO examinations summarizes the findings and recommendations within each of the eight review areas required by statute. These areas are adherence to policies, procedures, and methodologies; management of conflicts of interest; implementation of ethics policies; internal supervisory controls; governance; activities of designated compliance office; complaints; and post-employment factors.
The annual report on NRSROs, however, discusses the state of competition, transparency, and conflicts of interest among the firms, in addition to identifying any applicants for NRSRO registration. While the information reported by NRSROs indicates that Moody’s, S&P, and Fitch continue to account for the highest percentages of outstanding ratings, other information suggests that smaller NRSROs have gained market share in certain asset classes. A large proportion of the aggregate credit ratings reported to be outstanding were in the government securities category, which accounted for 79.0% of the credit ratings across all categories and is also the most concentrated rating category, with Moody’s and S&P accounting for 87.2% of all outstanding government ratings. A comparison of each NRSRO’s share of outstanding ratings over all the rating categories, including government securities, illustrates that there is less concentration in the non-government securities rating categories. S&P’s and Moody’s percentage share of all outstanding ratings declines by 14.5 and 5.6 percentage points, respectively, when government securities are excluded. Fitch’s percentage share of outstanding ratings, however, increases by 7.2 percentage points when government securities are excluded.
Keywords: Americas, US, Banking, Insurance, Securities, NRSRO, Credit Rating Agencies, Credit Risk, SEC
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