The Dodd-Frank Act also required SEC to issue regulations imposing new  requirements on NRSROs related to qualification standards for credit  rating analysts. Views Varied on the Merits of a Professional Organization for Credit Rating Analysts

Views varied on the merits of a professional organization for credit rating  analysts of nationally recognized statistical rating organizations, but most  concluded it was too early to tell if one was needed. Finally, some NRSRO representatives, a few experts and analysts, and  SEC officials said that it was too early to determine whether a  professional organization might add to or complement the quality or  oversight of analysts’ work, particularly in light of SEC’s new requirements  designed to enhance the standards of training, experience, and  competence for credit rating analysts at NRSROs. As we stated earlier,  the new rules, which became effective in June 2015, require NRSROs to  ensure that analysts meet additional quality standards to produce  accurate ratings and are periodically tested on their knowledge of the  NRSRO’s credit rating process. Most analysts and representatives of NRSROs and some  experts and stakeholders (including academics, investors, advocacy  groups, and international regulators) told us that putting these  components in place for an organization for NRSRO credit rating analysts  could be challenging. According to some  NRSRO representatives, experts, and a few analysts, defining a clear  purpose and mission for an organization for credit rating analysts would  be difficult at this time because of the new SEC regulations. Some representatives of NRSROs and existing  professional organizations, experts, and analysts with whom we spoke  stated that the relatively small population of credit rating analysts—as of  December 2014, NRSROs employed approximately 4,500 analysts— suggests it might be challenging to obtain adequate funding to create and  operate the organization, at least initially. As an  alternative to receiving direct funding from NRSROs, the organization  could be partly funded through transactions fees paid to NRSROs. Meaningful Activities

Creating and operating any professional organization requires developing  core activities and services, such as professional standards, education  and training curricula, certification tests, and structures to oversee  member compliance. Appendix I: Objectives, Scope, and Methodology

Section 939E of the Dodd-Frank Wall Street Reform and Consumer  Protection Act (Dodd-Frank Act) required us to study the feasibility and  merits of creating an independent professional organization for rating  analysts employed by nationally recognized statistical rating organizations  (NRSRO) that would be responsible for establishing independent  standards for governing the profession of rating analysts, establishing a  code of ethical conduct, and overseeing the profession of rating analysts. We also analyzed the International Organization of  Securities Commissions (IOSCO) Code of Conduct Fundamentals for  Credit Rating Agencies as well as SEC’s new rule requiring NRSROs to  establish standards for training, experience, and competence of credit  rating analysts. To gather a diverse set of perspectives, we interviewed SEC officials;  NRSRO representatives; industry experts and stakeholders—including  investors, academics, representatives of credit rating and analysis firms  not registered with SEC, representatives of the Software and Information  Industry Association, representatives of a research institute, and officials  with the European Securities and Markets Authority and IOSCO—and  leadership or governing bodies of existing professional organizations.We obtained their views about (1) the advantages and disadvantages (for  regulators, credit rating agencies, rating analysts, investors, and the  public) of creating a professional organization for credit rating analysts,  and (2) how a professional organization would fit within the existing  structure of regulation and oversight of credit rating agencies and credit  rating analysts. In facilitating each focus group, we focused our discussions on the  following topics:  current training received and any certifications held by credit rating  analysts; extent to which credit rating analysts currently have access to the  services typically offered by a professional organization, such as  education, professional standards and a code of ethical conduct for  governing the profession, professional certification or license,  oversight, and public education, outreach, or advocacy; extent to which there is a need for a professional organization for  credit rating analysts and any potential challenges in operating an  organization for analysts; potential advantages and disadvantages of creating a professional  organization for credit rating analysts based on the three models we  developed; and  feasibility of developing and overseeing professional standards for  credit rating analysts. The 2015 membership fee was $430 for active  members.
Why GAO Did This Study

The 2007–2009 financial crisis renewed concerns about the integrity of the credit rating industry. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) imposed new requirements on NRSROs and required SEC to implement regulations for training, experience, and competence of credit rating analysts. The Dodd-Frank Act also included a provision for GAO to conduct a study on the merits and feasibility of creating a professional organization for rating analysts employed by NRSROs.
This report describes views on (1) the potential merits of and need for a professional organization for credit rating analysts, and (2) any challenges associated with creating and operating such an organization. For this report, GAO reviewed SEC documentation and academic literature; held focus groups with approximately 100 credit rating analysts from different-sized firms who had a range of experience and skills; and interviewed SEC staff, representatives from all 10 NRSROs, and experts and stakeholders (including, academics, investors, advocacy groups, and international regulators). GAO also analyzed the structure and activities of six professional organizations that develop and oversee professional standards and a code of conduct, and interviewed representatives of the organizations.

What GAO Found

Views varied on the merits of a professional organization for credit rating analysts of nationally recognized statistical rating organizations (NRSRO), but some concluded it was too early to tell if one was needed, in part because of new Securities and Exchange Commission (SEC) requirements on NRSROs to establish standards for their analysts. The analysts, representatives of NRSROs and existing professional organizations, and experts and stakeholders (including academics, investors, advocacy groups, and international regulators) with whom GAO spoke said the merits of such an organization included improving the industry's reputation, enhancing the quality of work done by the professionals, and supplementing existing oversight. However, some said creating such an organization could duplicate existing standards, codes of conduct, or the services provided by other professional organizations. Some said that establishing a professional organization without evaluating the effectiveness of SEC's new regulations (which became effective in June 2015) would be premature. These rules require each NRSRO to establish training, experience, and competence standards to ensure analysts produce accurate ratings and to periodically test analysts' knowledge of the NRSRO's procedures and methodologies. Thus, some held the view that it was too early to determine in what areas a professional organization might add value—that is, add to or complement (rather than duplicate) standards, codes of conduct, training, or oversight—or if one was needed at all.
Creating and operating a professional organization for NRSRO credit rating analysts would not be without certain challenges. According to most analysts and representatives of NRSROs and some experts and stakeholders, the challenges primarily would relate to achieving the following aims:
Clearly delineated purpose . Delineating the mission or purposes of an organization would be difficult at the present time because the effects of the new SEC regulations were unknown.
Adequate funding. Obtaining sufficient funding through membership fees also might be difficult because of the relatively small population of analysts (about 4,500 as of 2014) to provide the fees.
Balanced representation. Creating an organizational structure that would provide equitable representation for all members, including from smaller NRSROs, could be challenging because of industry concentration (88 percent of analysts work for 3 of the 10 NRSROs).
Meaningful activities. Developing core activities and services, including professional standards, education and training curricula, certification tests, and structures to oversee member compliance could be challenging because of differences in NRSRO methodologies, concerns about sharing confidential information, and analyst specialization in specific rating classes (such as insurance or asset-backed securities).