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SEC ratings watchdog floats reassessing rule 17g-5

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By Max Adams
25 Feb 2020

Remarks delivered by the Securities and Exchange Commission’s director of the office of credit ratings at SFVegas on Monday hinted at the possibility that the regulator could re-evaluate the effectiveness of Rule 17g-5, a post-crisis rule intended to address conflicts in the issuer pay model.

Speaking on Monday morning, director of the OCR Jessica Kane stated that the SEC is looking to engage further with the market on the effectiveness of the rule. Rule 17g-5 was adopted in 2009, requiring a rating agency to make information related to a securitization rating public so that another rating firm could potentially issue unsolicited ratings. Instances of a rating agency issuing commentary or full ratings for a deal they have not be paid to rate are rare, and it sounds like the SEC may be ready to reassess the requirement.

“I welcome input and engagement from all interested parties on this issue,” Kane said. “For example: is the rule fulfilling its intended purpose?  What changes to the rule could enhance its effectiveness? Should NRSROs be able to access the 17g-5 website data to produce commentaries? What burdens and benefits are associated with rule compliance? Are there other ways to address the issuer-pay conflict of interest?

The indication from the SEC that the rule is up for debate follows an exemption to 17g-5 for deals from non-US issuers adopted last year.

In early February, a letter sent to the SEC by four senators pushed for changes to the issuer pay model, urging the agency to hit back at practices that, in their view, lead to inflated ratings.

By Max Adams
25 Feb 2020