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CG Quiz - SEC Urges Changes
quiz on 3/30.
7
Accounting
Graduate
03/29/2011

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Cards

Term
What did the inspector general of the SEC state regarding regulation of the nation's credit ratings agencies?
Definition
They have "historically been slow to act" in regulating them, and recommended a broad range of improvements to the SEC's oversight.
Term
What did the SEC report call for?
Definition
(1) A broad range of improvements to the SEC's oversight.
(2) Further evaluation of several controversial policies (ability to "shop" for highest possible rating, etc.).
Term
Why was the internal audit ordered? What did it find?
Definition
The financial crisis raised serious questions about the rating agencies. It found that the SEC delayed adopting rules on the rating agencies, and sometimes failed to follow the rules that existed.
Term
When did the SEC begin issuing regulations regarding the credit rating agencies?
Definition
When it was required to do so after the Rating Agency Act was enacted in 2006. The review identified instances of noncompliance with the Act's requirements or commission rules.
Term
What was the recommended action (contained in the report)?
Definition
(1) SEC should impose further restrictions on the consulting and advisory services that rating agencies provide to issuers of rated debt (to avoid conflicts of interest).
(2) place a rotation requirement for credit rating analysts.
(3) review whether the quality of ratings is affected by the "revolving door syndrome."
(4) new rules requiring enhanced disclosure of the credit rating agencies' methods.
Term
What is "revolving door syndrome"?
Definition
Analysts leave to work for an issuer whose debt they were rating.
Term
What are some examples of concerns that the SEC has overlooked when reviewing applications of rating agencies (who are applying to become nationally recognized)?
Definition
(1) the adequacy of their managerial resources.
(2) the accuracy of the financial information provided in application.
(3) concerns about the authenticity if a "number of certifications" are required under law.
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