Term
| What did the inspector general of the SEC state regarding regulation of the nation's credit ratings agencies? |
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Definition
| They have "historically been slow to act" in regulating them, and recommended a broad range of improvements to the SEC's oversight. |
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Term
| What did the SEC report call for? |
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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.). |
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Term
| Why was the internal audit ordered? What did it find? |
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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. |
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Term
| When did the SEC begin issuing regulations regarding the credit rating agencies? |
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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. |
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Term
| What was the recommended action (contained in the report)? |
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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. |
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Term
| What is "revolving door syndrome"? |
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Definition
| Analysts leave to work for an issuer whose debt they were rating. |
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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)? |
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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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