Brattle Senior Associate Pavitra Kumar recently contributed to Practice Points, a publication of the ABA’s Securities Litigation Committee, on the Securities and Exchange Commission’s (SEC) 2015 summary report of the Nationally Recognized Statistical Rating Organization (NRSRO).
Dr. Kumar discusses the annual report that highlighted several examples of continued failures to manage potential conflicts of interest resulting from the agencies’ use of an “issuer pays” model. She explains that these concerns with conflicts of interest resurrect the questions raised in 2008 and 2014 of whether this compensation model should be improved or completely overhauled.
Dr. Kumar recalls how the SEC previously identified issues relating to managing conflicts of interest in 2008, which resulted in the adoption of new rules to increase transparency and accountability at the agencies. In 2014, the SEC adopted additional rules for the rating agencies to enhance governance and further protect against conflicts of interest; however, these rules did not alter the “issuer pays” model. Dr. Kumar believes the continuing concerns over conflicts of interest will remain a topic of discussion.
The full post, “Latest SEC Report on Rating Agencies Resurrects Questions Concerning Conflicts of Interest,” can be read on the ABA’s website.