A new agency tasked with overseeing credit rating agencies will be headed by a former Morgan Stanley executive, the Securities and Exchange Commission announced on Friday.
The SEC's Office of Credit Ratings, created by the Dodd-Frank Act, is responsible for overseeing the nine registered Nationally Recognized Statistical Rating Organizations (NRSROs). Required among these responsibilities is conducting an annual exam of each credit rating agency and issuing a public report. On June 15, the SEC announced that Thomas J. Butler has been appointed director of the agency.
Butler, whose first day on the job was June 18, will oversee a staff of approximately 25 lawyers, accountants, and examiners responsible for examining and monitoring the NRSROs.
Butler spent 14 years working at Morgan Stanley Smith Barney and its predecessors, including Citi Global Wealth Management, where he held senior executive positions for several business units. He was a managing director and chief operating officer for the Investment Strategy, Investment Advisory, Global Investments and Public Sector Group units.
Prior to the creation of the Office of Credit Ratings, NRSRO examinations required under Dodd-Frank have been conducted by the SEC's Office of Compliance Inspections and Examinations, which issued the first public report regarding the annual examinations on Sept. 30, 2011.
In 2006, Congress passed the Credit Rating Agency Reform Act, requiring the SEC to establish guidelines for determining which credit rating agencies qualify as NRSROs. It gave the SEC power to regulate NRSRO internal processes regarding record-keeping and how they guard against conflicts of interest, making the NRSRO determination subject to a Commission vote. The law specifically prohibits the SEC from regulating an NRSRO's rating methodologies.
The Dodd-Frank Act further enhanced the SEC's enforcement tools, adding new rules regarding: annual reports on internal controls; conflicts of interest with respect to sales and marketing practices; “look-backs” when credit analysts leave the NRSRO; fines and penalties; disclosure of performance statistics, application and disclosure of credit rating methodologies; form disclosure of data and assumptions underlying credit ratings; disclosure about third party due diligence; and analyst training and testing.