SEC requirements for XBRL disclosures affect three types of entities: operating companies, mutual funds, and credit rating agencies that are Nationally Recognized Statistical Rating Organizations (NRSROs).

The mandate for operating companies has, quite properly, received the great bulk of the attention, and there has been a continuous flow of information and commentary. For mutual funds, the Commission’s recent webinar on providing XBRL data for the risk/return summary offers an excellent outline and many of the specifics.

Comparatively little has been written about the requirement for NRSROs. I hope this short Q&A is useful.

1. What is a Nationally Recognized Statistical Rating Organization?

NRSROs are credit rating agencies (CRAs) that are registered with the SEC under guidelines of the Credit Rating Agency Reform Act of 2006 and whose ratings are consequently deemed acceptable for a variety of regulatory purposes, including capital requirements. Given their Federal government imprimatur, NRSROs enjoy enhanced status vis-à-vis other CRAs, and their ratings are widely used by other government entities and investors.

2. How many NRSROs are there, who are they, and what securities do they rate?

As listed on this SEC webpage, there are currently ten NRSROs which “…may be registered with respect to up to five classes of credit ratings: (1) financial institutions, brokers, or dealers; (2) insurance companies; (3) corporate issuers; (4) issuers of asset-backed securities; and (5) issuers of government securities, municipal securities, or securities issued by a foreign government.”

3. What was the process for adopting XBRL disclosure for NRSROs?

Unlike the XBRL-specific interactive data rule for operating companies, the regulations to implement XBRL for NRSROs were part of a series of amendments to the larger set of rules that govern these entities. As readers are aware, many observers place substantial responsibility on credit rating agencies for the subprime mortgage meltdown and consequent financial crisis. In response, in 2008-2009, the Commission proposed amendments — including provisions for XBRL disclosure — to existing rules governing NRSROs, modifying them after considering the Comments they received from the NRSROs and other parties.

4. What views were expressed in the Comments to XBRL implementation?

The Comments I reviewed were mostly unconcerned with either the utility or difficulty of adopting XBRL. Instead, the Comments – particularly those from NRSROs – focused on the threat to the agencies’ subscription revenues from public disclosure of ratings data soon after the rating was issued. One Comment noted that the drop in subscription revenue from fast public disclosure would have the perverse effect of making NRSROs even more reliant on income from issuers – a revenue source at the heart of the criticism credit rating agencies received for their role in the financial crisis.

5. What are the current requirements for XBRL disclosure by NRSROs?

NRSROs must post on their websites in XBRL format a random sample of 10% of their issuer-paid credit ratings and histories of ratings actions for each class of rating for which the NRSRO is registered and has issued 500 or more issuer-paid ratings. In addition, they must disclose ratings histories for all credit ratings initially determined on or after June 26, 2007. Apparently recognizing NRSRO concerns about revenue impairment, the SEC ruled that, for issuer-paid ratings, ratings actions must be disclosed 12 months after they were taken; for other ratings, ratings actions need not be disclosed until 24 months after they were taken.

6. What is the status of the XBRL taxonomy for NRSRO disclosures?

The taxonomy has been developed by XBRL US, and the SEC hopes to release it shortly. Because the rule requires an NRSRO to use the List of XBRL Tags for NRSROs published on the Commission’s Web page and such a list is not currently available, NRSROs “can satisfy the requirement…by using an XBRL format or any other machine readable format, until such time as the Commission provides further notice.” (see Release No. 34-60451).

For readers who want to do further research on the requirements, the SEC’s Spotlight on Nationally Recognized Statistical Rating Organizations has the links to the relevant documents. Also, note that the financial reform bill passed a few days ago has numerous provisions that will affect NRSROs. I’m not aware that they will have an impact on XBRL disclosure rules, but please let me know of any possible effect.