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Credit Rating Agency Reform law attests to FEI's influence.


The work of FEI's technical committees continues to be influential. Our Committee on Corporate Finance (CCF CCF
abbr.
Cooperative Commonwealth Federation of Canada
) was an early and forceful advocate of the Credit Rating Agency A credit rating agency (CRA) is a company that assigns credit ratings for issuers of certain types of debt obligations. In most cases, these issuers are companies, cities, non-profit organizations, or national governments issuing debt-like securities that can be traded on a  Reform Act of 2006. In March of this year, I testified before the U.S. Senate Committee on Banking, Housing and Urban Affairs at a hearing on "Assessing the Current Oversight & Operation of Credit Rating Agencies Credit Rating Agencies

Firms that compile information on and issue public credit ratings for a large number of companies.
," representing CCF.

The testimony assessed the current environment, noting that credit rating agencies play a very vital role in the U.S. and world financial markets. While there are more than 100 credit rating agencies operating worldwide, only five are currently designated as "Nationally Recognized Statistical Rating Organizations A Nationally Recognized Statistical Rating Organization (or "NRSRO") is a credit rating agency which issues credit ratings that the U.S. Securities and Exchange Commission (SEC) permits other financial firms to use for certain regulatory purposes. " (NRSROs) by the U.S. Securities and Exchange Commission (SEC). These five have enjoyed a competitive advantage over their peers because the guidelines guidelines,
n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks.
 for many government, mutual fund and other institutional investment portfolios not only specify minimum credit ratings for their securities, but also require that the ratings come from NRSROs.

[ILLUSTRATION OMITTED]

NRSRO NRSRO Nationally Recognized Statistical Rating Organization  status was obtained by requesting a staff no-action letter No-action letter

A letter from the Securities and Exchange Commission agreeing that the commission will take no civil or criminal action against a party, regarding a specific activity.
 from the SEC. The SEC's criteria for an NRSRO was that it be "widely accepted in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area.  as an issuer of credible and reliable ratings." There was no emphasis placed on ensuring that the credit rating agency continued to satisfy the criteria.

Since NRSROs were created in 1975, the importance of the NRSRO stamp of approval grew far more than anticipated. Loan agreements now often require borrowers to maintain certain ratings from NRSROs; failure to do so can trigger higher interest rates, or even default.

Call for Eliminating 'No Action' Process

The system afforded substantial advantages to the handful of credit rating agencies that received the NRSRO designation. We testified that the most effective way to increase competition was to eliminate the "no action" process at the SEC and replace it with transparent registration requirements.

By establishing stringent, yet clear criteria for registration, Congress would not only ensure the continued validity of ratings issued by registered credit rating agencies, but would generate more competition in the credit rating market. That, in turn, would provide more choice for issuers, lower costs for rating services and higher-quality service.

We asked that Congress direct the SEC to begin by developing clear criteria for registration, which might include requiring the agencies to demonstrate their procedures and methodologies used in developing ratings, demonstrate that they have developed procedures for protecting non-public information and disclose the qualifications of those tasked with developing ratings.

We also asked that Congress increase the accountability of the rating agencies through regular performance audits to ensure that the registered entities continue to satisfy operational criteria. Additionally, we asked that Congress consider conflicts of interest that may arise when the rating agencies provide fee-based advisory services advisory services

advisory services provided to the public, in their capacity as owners and managers of animals, are an important part of veterinary science. They may be provided by government bureaux, by commercial companies who deal in pharmaceuticals or animals or animal
 to their rated clients.

New Definition and Oversight Created

On September 22, the Senate approved by unanimous consent In parliamentary procedure, unanimous consent, also known as general consent, is a situation in which no one present objects. The chair may state, for instance: "If there is no objection, the motion will be adopted. [pause] Since there is no objection, the motion is adopted.  the Credit Rating Agency Reform Act of 2006. (The House of Representatives passed its version of the bill in July). The legislation overhauls the framework for registering and overseeing credit rating agencies. The bill requires that the SEC register credit rating agencies that meet a new definition and oversee them through inspections, examinations and enforcement.

Among the items that would be listed on an SEC registration are conflicts of interest, procedures and methodologies used in determining credit ratings, credit ratings performance measurement statistics and procedures for protecting non-public information. Sound familiar?

On September 29, President Bush signed the Credit Rating Agency Reform Act into law. Through its technical committees like CCF, FEI FEI

Fédération Équestre Internationale.
 continues to be an influential advocate for financial executives.
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Title Annotation:president'sPAGE
Author:Cunningham, Colleen
Publication:Financial Executive
Date:Nov 1, 2006
Words:599
Previous Article:James W. Barge.(balanceSHEET)(Biography)
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