A New Law for the Bond Rating Industry-- For Better or For Worse

Abstract

With little fanfare last September, President Bush signed the Credit Rating Agency Reform Act of 2006. This new legislation has the potential to change the way that the credit rating industry is regulated by the Securities and Exchange Commission. So as to provide a better understanding of the significance of the new law, this paper first provides a brief recounting of the bond rating industry's history and the SEC's haphazard regulation of this industry over the past 31 years. The paper then outlines the important provisions of the new act and comments on the possible routes that the SEC could follow in implementing it.