Credit Rating Agency Duopoly Relief Act of 2006 - (Sec. 4) Amends the Securities Exchange Act of 1934 (Act) to define a credit rating agency as any person: (1) 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 excluding a commercial credit reporting company; (2) employing either a quantitative or qualitative model, or both, to determine credit ratings; and (3) receiving fees from either issuers, investors, or other market participants, or a combination of them.
Defines a nationally recognized statistical rating organization (NRSRO) as a credit rating agency that has been in business as a credit rating agency for at least the past three consecutive years and is registered under the Act.
Prescribes procedural requirements for mandatory NRSRO registration and certification.
Authorizes the Securities and Exchange Commission (SEC) to: (1) take action against any NRSRO that issues credit ratings in contravention of the procedures, criteria, and methodologies that it includes in its registration application or makes and disseminates in required reports; and (2) censure, restrict, suspend for a period not exceeding 12 months, or revoke NRSRO registration for violations of this Act.
Declares it is unlawful for an NRSRO to represent or imply that it has been sponsored, recommended, or approved, or that its abilities or qualifications have been passed upon, by any federal agency or officer.
States it is unlawful for an unregistered credit rating agency to declare itself an NRSRO.
Requires an NRSRO to establish and enforce written policies and procedures to: (1) prevent the misuse in violation of this Act of material, nonpublic information by itself or any associated person; and (2) address and manage potential conflicts of interest.
Grants the SEC discretion to adopt rules or regulations to prohibit, or require the management or disclosure of, any conflicts of interest relating to the issuance of credit ratings by an NRSRO.
Authorizes the SEC to adopt rules that prohibit unfair, coercive, or abusive practices relating to the issuance of credit ratings by an NRSRO.
Requires an NRSRO to: (1) designate a compliance officer for ensuring compliance with securities laws and regulations; and (2) furnish to the SEC certified statements of financial condition by an independent public accountant.
Requires the SEC staff, within 30 days of enactment of this Act, to cease designation of persons and companies as NRSRO, as the term is used under current regulations.
Declares void and of no force or effect the no-action relief that the SEC has granted with respect to the designation of certain NRSRO.
(Sec. 5) Includes an NRSRO among the financial entities required to maintain SEC-prescribed records and reports. States that any report an NRSRO may be required by SEC rules to make and disseminate to the SEC shall be deemed furnished to the SEC.
(Sec. 6) Instructs the Comptroller General to study and report to certain congressional committees on: (1) factors that have led to the consolidation of credit rating agencies; (2) the resulting impact upon securities markets; (3) the problems, if any, faced by business organizations resulting from limited competition among credit rating agencies; and (4) whether and to what extent federal or state regulations impede such competition.
[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2990 Introduced in House (IH)]
109th CONGRESS
1st Session
H. R. 2990
To improve ratings quality by fostering competition, transparency, and
accountability in the credit rating agency industry.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
June 20, 2005
Mr. Fitzpatrick of Pennsylvania introduced the following bill; which
was referred to the Committee on Financial Services
_______________________________________________________________________
A BILL
To improve ratings quality by fostering competition, transparency, and
accountability 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; REFERENCES.
(a) Short Title.--This Act may be cited as the ``Credit Rating
Agency Duopoly Relief Act of 2005''.
(b) References.--Except as otherwise expressly provided, whenever
in this Act an amendment or repeal is expressed in terms of an
amendment to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provision of the
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.).
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 House
Committee on Financial Services during the 108th and 109th Congresses,
comment letters to the concept releases and proposed rules of the
Securities and Exchange Commission, and facts otherwise disclosed and
ascertained, the Congress finds that--
(1) credit rating agencies are of national concern, in
that, among other things--
(A) 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 means and instrumentalities
of interstate commerce;
(B) 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;
(C) the foregoing transactions occur in such volume
as substantially to affect interstate commerce, and
securities markets, the national banking system, and
the national economy; and
(D) their regulation serves the compelling interest
of investor protection; and
(2) the Securities and Exchange Commission--
(A) has, through its designation of certain credit
rating agencies as nationally recognized statistical
rating organizations, created an artificial barrier to
entry for new participants; and
(B) will, in its latest proposed rule defining
nationally recognized statistical rating organizations,
codify and strengthen this barrier.
SEC. 3. DEFINITIONS.
Section 3(a) (15 U.S.C. 78c(a)) is amended by adding at the end the
following new paragraphs:
``(60) Statistical rating organization.--
``(A) Definition.--The term `statistical rating
organization' means an entity--
``(i) the primary business of which, for at
least the most recent three consecutive years,
has been the issuance of publicly available
ratings; and
``(ii) that employs either a quantitative
or qualitative model, or both, to determine its
publicly available ratings.
``(B) Publicly available ratings.--For purposes of
subparagraph (A), the term `publicly available ratings'
means ratings on public companies or specific debt
securities or both disseminated on the Internet for
free or a fee.
``(61) Nationally registered statistical rating
organization; nrsro.--The term `nationally registered
statistical rating organization' or `NRSRO' means a statistical
rating organization registered or required to register pursuant
to section 15E of this title.''.
SEC. 4. REGISTRATION OF 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 STATISTICAL RATING ORGANIZATIONS.
``(a) Registration Required.--Except as provided in subsection (b),
it shall be unlawful for any statistical rating organization, unless
registered under this section, to make use of the mails or any means or
instrumentality of interstate commerce in connection with its business
as a statistical rating organization.
``(b) Exceptions.--The Commission, by rule or order, as it deems
consistent with the public interest and the protection of investors,
may conditionally or unconditionally exempt from subsection (a) of this
section any statistical rating organization specified in such rule or
order.
``(c) Registration Procedures.--
``(1) Filing of application form.--A statistical rating
organization may be registered by filing with the Commission an
application for registration in such form and containing such
of the following and any other information and documents
concerning such statistical rating organization and any persons
associated with such statistical rating organization as the
Commission, by rule, may prescribe as necessary or appropriate
in the public interest or for the protection of investors:
``(A) conflicts of interest faced by such
statistical rating organization and the management of
those conflicts by such statistical rating
organization;
``(B) the procedures and methodologies such
statistical rating organization uses in determining
ratings;
``(C) ratings performance measurement statistics
over short-term and long-term periods of such
statistical rating organization; and
``(D) procedures put in place by such statistical
rating organization to prevent the misuse of non-public
information.
``(2) Review of application.--
``(A) Initial determination.--Within 90 days of the
date of the filing of such application (or within such
longer period as to which the applicant consents) the
Commission shall--
``(i) by order grant such registration; or
``(ii) institute proceedings to determine
whether registration should be denied.
``(B) Conduct of proceedings.--Such proceedings
shall include notice of the grounds for denial under
consideration and opportunity for hearing and shall be
concluded within 90 days of the date of the filing of
the application for registration. At the conclusion of
such proceedings the Commission, by order, shall grant
or deny such registration. The Commission may extend
the time for conclusion of such proceedings for up to
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 such registration if the Commission finds that
the requirements of this section are satisfied. The
Commission shall deny such registration if it does not
make such a finding or if it finds that if the
applicant were so registered, its registration would be
subject to suspension or revocation under subsection
(d) of this section.
``(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 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 in the public interest and that such
statistical rating organization, or any person associated with such
statistical rating 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 paragraph (4) of section 15(b), has been
convicted of any offense specified in subparagraph (B) of such
paragraph (4) within 10 years of the commencement of the
proceedings under this subsection, or is enjoined from any
action, conduct, or practice specified in subparagraph (C) of
such paragraph (4);
``(2) has been convicted during the 10-year period
preceding the date of filing of any application for
registration, 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; or
``(3) is subject to any order of the Commission barring or
suspending the right of the person to be associated with a
statistical rating organization.
``(e) Withdrawal of Advisers Registration.--Each statistical rating
organization registered under section 203 of the Investment Advisers
Act of 1940 shall withdraw from registration under such section by
filing a written notice of withdrawal with the Commission pursuant to
section 203(h) of the Investment Advisers Act, upon the granting of
registration of such organization by the Commission pursuant to
subsection (c) of this section.
``(f) Representations.--
``(1) Representations of sponsorship by united states or
agency thereof.--It shall be unlawful for any statistical
rating organization registered under this section to represent
or imply in any manner whatsoever that such statistical rating
organization has been sponsored, recommended, or approved, or
that such statistical rating organization's abilities or
qualifications have in any respect been passed upon, by the
United States or any agency or any officer thereof.
``(2) Statement of registration under securities exchange
act of 1934 provisions.--No provision of paragraph (1) shall be
construed to prohibit a statement that a statistical rating
organization is a nationally registered statistical rating
organization under the Securities Exchange Act of 1934, if such
statement is true in fact and if the effect of such
registration is not misrepresented.
``(g) Prevention of Misuse of Nonpublic Information.--Each
statistical rating organization subject to this section shall
establish, maintain, and enforce written policies and procedures
reasonably designed, taking into consideration the nature of such
statistical rating organization's business, to prevent the misuse in
violation of this title, or the rules or regulations thereunder, of
material, nonpublic information by such statistical rating organization
or any person associated with such statistical rating organization. The
Commission, as it deems necessary or appropriate in the public interest
or for the protection of investors, shall adopt rules or regulations to
require specific policies or procedures reasonably designed to prevent
misuse in violation of this title (or the rules or regulations
thereunder) of material, nonpublic information.
``(h) Management of Conflicts of Interest.--Each statistical rating
organization subject to this section shall establish, maintain, and
enforce written policies and procedures reasonably designed, taking
into consideration the nature of the business of such statistical
rating organization and affiliated persons and affiliated companies of
such statistical rating organization, to address and manage the
conflicts of interest that can arise from such business. The
Commission, as it deems necessary or appropriate in the public interest
or for the protection of investors, shall adopt rules or regulations to
require specific policies or procedures reasonably designed to address
and manage such conflicts of interest.
``(i) Prohibition on Anti-Competitive Practices.--The Commission
shall adopt rules or regulations to prohibit specific anti-competitive
practices common to the statistical rating organization industry.
``(j) Elimination of Commission Designation Process for Nationally
Recognized Statistical Rating Organizations.--
``(1) Cessation of designation.--Within 30 days after the
enactment of the Credit Rating Agency Duopoly Relief Act of
2005, the Commission shall cease to designate persons and
companies as nationally recognized statistical rating
organizations, as that term is used under rule 15c3-1 of the
Commission's rules (17 C.F.R. 240.15c3-1).
``(2) Prohibition on reliance on no-action relief.--The no-
action relief that the Commission has granted with respect to
the designation of nationally recognized statistical rating
organizations, as that term is used under rule 15c3-1 of the
Commission's rules (17 C.F.R. 240.15c3-1), shall be void and of
no force or effect.
``(3) Notice to other agencies.--Within 30 days after the
date of enactment of the Credit Rating Agency Duopoly Relief
Act of 2005, the Commission shall give notice to the Federal
agencies which employ the term `nationally recognized
statistical rating organization' (as that term is used under
rule 15c3-1 of the Commission's rules (17 C.F.R. 240.15c3-1))
in their rules and regulations regarding the actions undertaken
pursuant to paragraphs (1) and (2).''.
(b) Conforming Amendments to the 1934 Act.--
(1) Section 3(a)(41) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)(41)) is amended by striking ``recognized''
and inserting ``registered''.
(2) Section 3(a)(53)(A) of such Act is amended by striking
``recognized'' and inserting ``registered''.
(3) Section 15(b)(4)(B)(ii) of such Act (15 U.S.C.
78o(b)(4)(B)(ii)) is amended by inserting ``statistical rating
organization,'' after ``transfer agent,''.
(4) Section 15(b)(4)(C) of such Act is amended by inserting
``statistical rating organization,'' after ``transfer agent,''.
(5) Section 21B(a) of such Act (15 U.S.C. 78u-2(a)) is
amended by inserting ``15E,'' after ``15C,''.
(c) Other Conforming Amendments.--
(1) Section 5136A(a)(3)(A)(i) of the Revised Statutes of
the United States (12 U.S.C. 24a(a)(3)(A)(i)) is amended by
striking ``recognized'' and inserting ``registered''.
(2) Section 28(d)(4)(A) of the Federal Deposit Insurance
Act (12 U.S.C. 1831e(d)(4)(A)) is amended by striking
``recognized'' and inserting ``registered''.
(3) 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 registered statistical
rating organization, as such term is defined in section 3(a) of
the Securities Exchange Act of 1934''.
(4) Section 6(a)(5)(A)(iv)(I) of the Investment Company Act
of 1940 (15 U.S.C. 80a-6(a)(5)(A)(iv)(I)) is amended by
striking ``recognized'' and inserting ``registered''.
(5) Section 439 of the Higher Education Act of 1965 (20
U.S.C. 1087-2) is amended--
(A) in each of the following provisions, by
striking ``nationally recognized'' and inserting
``nationally registered'': subsections
(d)(5),(r)(1)(B), (r)(11), and (r)(15)(A); and
(B) in subsection (r)(15)(A) by striking ``means
any entity recognized as such by the Securities and
Exchange Commission'' and inserting ``means any
nationally registered statistical rating organization
as that term is defined under the Securities Exchange
Act of 1934''.
(6) 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 statistical rating organization as
that term is defined under the Securities Exchange Act of 1934
(15 U.S.C. 78 et seq.)''.
(7) Section 1004(d)(2)(D)(i)(II) of the LOCAL TV Act (47
U.S.C 1103(d)(2)(D)(i)(II)) is amended by striking
``recognized'' and inserting ``registered''.
SEC. 5. ANNUAL AND OTHER REPORTS.
Section 17(a) (15 U.S.C. 78q(a)) is amended by adding at the end
the following new paragraph:
``(4) Every nationally registered statistical rating organization
shall also make and keep for described periods such records, furnish
such copies thereof, and make and disseminate such reports as the
Commission, by rule, prescribes as necessary or appropriate in the
public interest, for the protection of investors, or otherwise in
furtherance of the purposes of this title.''.
SEC. 6. GAO STUDY AND REPORT REGARDING CONSOLIDATION OF CREDIT RATING
AGENCIES.
(a) Study Required.--The Comptroller General of the United States
shall conduct a study--
(1) to identify--
(A) the factors that have led to the consolidation
of credit rating agencies;
(B) the present and future impact of the condition
described in subparagraph (A) on the securities
markets, both domestic and international; and
(C) solutions to any problems identified under
subparagraph (B), including ways to increase
competition and the number of firms capable of
providing credit rating services to large national and
multinational business organizations that are subject
to the securities laws;
(2) of the problems, if any, faced by business
organizations that have resulted from limited competition among
credit rating agencies, including--
(A) higher costs;
(B) lower quality of services;
(C) anti-competitive practices;
(D) impairment of independence; and
(E) lack of choice; and
(3) whether and to what extent Federal or State regulations
impede competition among credit rating agencies.
(b) Consultation.--In planning and conducting the study under this
section, the Comptroller General shall consult with--
(1) the Securities and Exchange Commission;
(2) the Department of Justice; and
(3) any other public or private sector organization that
the Comptroller General considers appropriate.
(c) Report Required.--Not later than 180 days 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.
SEC. 7. EFFECTIVE DATE.
The amendments made by section 4 and 5 shall take effect on January
1, 2007, except as otherwise provided in subsections (e), (j)(1), and
(j)(3) of section 15E of the Securities Exchange Act of 1934 (as added
by such amendments), and except that the Securities and Exchange
Commission is authorized to prescribe rules and regulations to carry
out such amendments beginning on the date of enactment of this Act.
<all>
Mr. Price (GA) asked unanimous consent that the Committee on Financial Services have until 12:00 p.m. on July 7 to file a report on H.R. 2990. Agreed to without objection.
Reported (Amended) by the Committee on Financial Services. H. Rept. 109-546.
Reported (Amended) by the Committee on Financial Services. H. Rept. 109-546.
Placed on the Union Calendar, Calendar No. 306.
Rules Committee Resolution H. Res. 906 Reported to House. Rule provides for consideration of H.R. 2990 with 1 hour of general debate. Previous question shall be considered as ordered without intervening motions except motion to recommit with or without instructions. Measure will be considered read. Specified amendments are in order.
Rule H. Res. 906 passed House.
Considered under the provisions of rule H. Res. 906. (consideration: CR H5080-5094; text of measure as reported in House: CR H5087-5089)
Rule provides for consideration of H.R. 2990 with 1 hour of general debate. Previous question shall be considered as ordered without intervening motions except motion to recommit with or without instructions. Measure will be considered read. Specified amendments are in order.
House resolved itself into the Committee of the Whole House on the state of the Union pursuant to H. Res. 906 and Rule XVIII.
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The Speaker designated the Honorable John Boozman to act as Chairman of the Committee.
GENERAL DEBATE - The Committee of the Whole proceeded with one hour of general debate on H.R. 2990.
DEBATE - Pursuant to the provisions of H. Res. 906, the Committee of the Whole proceeded with 10 minutes of debate on the Oxley amendment.
DEBATE - Pursuant to the provisions of H. Res. 906, the Committee of the Whole proceeded with 20 minutes of debate on the Kanjorski amendment.
The House rose from the Committee of the Whole House on the state of the Union to report H.R. 2990.
The previous question was ordered pursuant to the rule. (consideration: CR H5094)
The House adopted the amendment in the nature of a substitute as agreed to by the Committee of the Whole House on the state of the Union.
Passed/agreed to in House: On passage Passed by recorded vote: 255 - 166 (Roll no. 368).
Roll Call #368 (House)On passage Passed by recorded vote: 255 - 166 (Roll no. 368).
Roll Call #368 (House)Motion to reconsider laid on the table Agreed to without objection.
Received in the Senate and Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.