While we’re on the topic of Dodd-Frank rules and regs that could have a significant impact on the securitization market, the SEC recently reported the findings of a study it conducted regarding assigned credit ratings for structured finance products – a report required under Section 939F of the Dodd-Frank Act that will subsequently lead to new rulemaking.

Members of the Division of Trading and Markets of the SEC published the report to Congress after an extensive information-gathering process involving meetings with various stakeholders and the review of 32 comment letters from the major rating agencies and other interested parties. In addition to being asked to examine matters such as the accuracy of the credit rating process, conflicts of interests associated with different pay models and alternative means for compensating the rating agencies, the SEC was tasked with offering recommendations for regulatory or statutory changes that could be made to implement the findings of the study. The report highlights several “systems” of providing initial credit ratings to structured finance products, breaking down the pros and cons of each system and ultimately determining that more information is needed to choose the best course of action – making it clear that a final rule is likely in the distant future. Patrick Dolan and CrunchedCredit’s own Linda Ann Bartosch teamed up to provide a summary and analysis of the SEC’s report on behalf of Dechert’s Finance and Real Estate Group, which can be found here.

By: Ralph R. Mazzeo and Eric J. Kotloff