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sec proposes to expose rating agencies to liability October 8, 2009

Posted by Bradley in : financial regulation , trackback

Yesterday the SEC published proposals to require the inclusion of information about credit ratings in registration statements, together with a concept release in which it proposes to subject rating agencies to a risk of liability under section 11 of the Securities Act (removing the protection currently given to such opinions when given by NRSROs). There are a number of reasons for the rather elegant proposal, but I like this one a lot:

… we believe that when credit ratings are used to sell securities, investors rely on NRSROs and other credit rating agencies as experts and that it may be appropriate for our liability scheme for experts to apply to them. In our view, NRSROs represent themselves to registrants and investors as experts at analyzing credit and risk. Investors rely on the information provided by credit rating agencies for a key part of their investment decision. NRSROs describe the credit ratings that they provide as opinions with respect to the registrant or security of the registrant, and the Commission notes that other professionals provide opinions upon which investors rely, such as legal opinions, valuation opinions, fairness opinions and audit reports, and we treat these opinions as subject to the Securities Act’s provisions for experts, including our requirements that registrants include the consents of such professionals if their reports are referenced in registration statements. It appears to us that NRSROs and other credit rating agencies are experts similar to other parties subject to liability under Section 11 and that it may no longer be consistent with investor protection to exempt NRSROs from the provisions of the Securities Act applicable to experts.


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