Order Granting Conditional Exemption for Japan Credit Rating Agency, Ltd. From Certain Requirements of Section 15E(t) of the Securities Exchange Act of 1934

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<title>Federal Register, Volume 91 Issue 212 (Wednesday, November 4, 2026)</title>
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[Federal Register Volume 91, Number 212 (Wednesday, November 4, 2026)]
[Notices]
[Pages 69614-69616]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-22521]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-106795]


Order Granting Conditional Exemption for Japan Credit Rating 
Agency, Ltd. From Certain Requirements of Section 15E(t) of the 
Securities Exchange Act of 1934

November 2, 2026.

I. Introduction

    Section 15E(t) of the Securities Exchange Act of 1934 (``Exchange 
Act'') requires that each nationally recognized statistical rating 
organization (``NRSRO'') implement certain corporate governance 
measures.\1\ Specifically, Section 15E(t)(1) requires each NRSRO to 
have a board of directors, and Section 15E(t)(3) sets forth specified, 
mandatory duties of such board of directors.\2\ Section 15E(t)(2)(A) 
provides that at least half of the board of directors, but not fewer 
than two members thereof, shall be independent of the NRSRO, and that a 
portion of the independent directors shall include users of ratings 
from an NRSRO.\3\ Section 15E(t)(2)(C) provides that the compensation 
of the independent members of the board of directors of the NRSRO shall 
not be linked to the business performance of the NRSRO, and shall be 
arranged so as to ensure the independence of their judgment. Such 
section also provides that the term of office of the independent 
directors shall be for a pre-agreed fixed period, not to exceed five 
years, and shall not be renewable.
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    \1\ 15 U.S.C. 78o-7(t).
    \2\ Section 15E(t)(3) provides that in addition to the overall 
responsibilities of the NRSRO's board of directors, the board shall 
oversee: (a) the establishment, maintenance, and enforcement of 
policies and procedures for determining credit ratings; (b) the 
establishment, maintenance, and enforcement of policies and 
procedures to address, manage, and disclose any conflicts of 
interest; (c) the effectiveness of the internal control system with 
respect to policies and procedures for determining credit ratings; 
and (d) the compensation and promotion policies and practices of the 
NRSRO.
    \3\ Section 15E(t)(2)(B) provides that in order to be considered 
independent, a member of the board of directors of an NRSRO: (1) may 
not, other than in his or her capacity as a member of the board or 
any committee thereof: (a) accept any consulting, advisory, or other 
compensatory fee from the NRSRO; or (b) be a person associated with 
the NRSRO or with any affiliated company thereof; and (2) shall be 
disqualified from any deliberation involving a specific rating in 
which the independent board member has a financial interest in the 
outcome of the rating.
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    Section 36 of the Exchange Act authorizes the Commission, by rule, 
regulation, or order, to exempt, either conditionally or 
unconditionally, any person, security, or transaction, or any class or 
classes of persons, securities, or

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transactions, from any provision of the Exchange Act or any rule or 
regulation thereunder, to the extent that such exemption is necessary 
or appropriate in the public interest, and is consistent with the 
protection of investors.\4\
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    \4\ 15 U.S.C. 78mm.
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II. Exemption Request of Japan Credit Rating Agency, Ltd.

    Japan Credit Rating Agency, Ltd. (``JCR'') is a credit rating 
agency registered with the Commission as an NRSRO under Section 15E of 
the Exchange Act for the classes of credit ratings described in clauses 
(i) through (iii) and clause (v) of Section 3(a)(62)(A) of the Exchange 
Act.\5\ On August 20, 2015, the Commission granted JCR a three-year, 
conditional exemption, pursuant to Exchange Act Section 36, allowing 
JCR to satisfy the requirements of Exchange Act Section 15E(t)(2) and 
(t)(3) through its supervisory committee.\6\ On August 17, 2018, 
pursuant to Exchange Act Section 36, the Commission granted JCR a 
subsequent three-year conditional exemption, that renewed for an 
additional two years in accordance with its terms, allowing JCR to 
satisfy the requirements of Exchange Act Section 15E(t)(2) and (t)(3) 
through its supervisory committee.\7\ On September 28, 2023, pursuant 
to Exchange Act Section 36, the Commission granted JCR another 
temporary, conditional exemption allowing JCR to satisfy the 
requirements of Exchange Act Section 15E(t)(2) and (t)(3) through its 
supervisory committee through October 30, 2026.\8\
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    \5\ On September 24, 2007, the Commission issued an order 
granting JCR registration as an NRSRO for the classes of credit 
ratings described in clauses (i) through (v) of Section 3(a)(62)(A) 
of the Exchange Act. On October 18, 2010, JCR submitted to the 
Commission a notice of withdrawal from registration in the class of 
credit ratings described in clause (iv) of such section, and such 
withdrawal became effective on December 2, 2010.
    \6\ See Order Granting Temporary Conditional Exemption for Japan 
Credit Rating Agency, Ltd. from Certain Requirements of Section 
15E(t) of the Securities Exchange Act of 1934, Release No. 34-75747.
    \7\ See Order Granting Temporary Conditional Exemption for Japan 
Credit Rating Agency, Ltd. from Certain Requirements of Section 
15E(t) of the Securities Exchange Act of 1934, Release No. 34-83884.
    \8\ See Order Granting Temporary Conditional Exemption for Japan 
Credit Rating Agency, Ltd. from Certain Requirements of Section 
15E(t) of the Securities Exchange Act of 1934, Release No. 34-98590 
(``2023 order'').
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    JCR has requested a continuation of such exemption that is not 
time-limited on the basis that Japanese law applicable to credit 
ratings agencies registered in Japan, including JCR, imposes 
requirements for strong independent oversight of credit rating agencies 
on the supervisory committee, a body separate from the board of 
directors.
    Specifically, JCR has represented to the Commission that Japanese 
law requires (1) all Japanese credit rating agencies to adopt certain 
control systems for ensuring the ``fair and appropriate performance'' 
of their credit rating business, including establishment of a 
``supervisory committee'' as a Japanese credit rating agency's internal 
oversight body and (2) at least one-third of the supervisory committee 
members (or at least two where there are three or fewer members) to be 
``independent members'' of the supervisory committee, and prohibits the 
directors of the Japanese credit rating agency from serving as 
independent members.\9\
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    \9\ JCR also represented to the Commission that while Japanese 
law may not expressly prohibit a Japanese credit rating agency from 
establishing two separate internal oversight bodies where the board 
of directors fully complies with the requirements set forth in 
Exchange Act Section 15E(t), such redundant arrangement would, among 
other things, be inconsistent with the spirit of the Japanese law 
since Japanese law was intended for non-director independent members 
of the supervisory committee to have the applicable oversight 
responsibilities.
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    JCR also represented to the Commission that it has established 
processes to ensure compliance with the conditions in the 2023 order 
and that its supervisory committee fulfills the functional equivalent 
of the requirements applicable to an NRSRO's board of directors under 
Exchange Act Section 15E(t)(2) and (t)(3). For example, JCR represented 
to the Commission that: (1) two of the four supervisory committee 
members are independent members and one of the independent members is a 
user of ratings; (2) the supervisory committee independent members 
receive no prohibited compensatory fees, are not associated with JCR or 
any of its affiliated companies, and are disqualified from deliberation 
involving a rating where the member has a financial interest in the 
outcome of the rating; and (3) the supervisory committee independent 
members receive no prohibited compensation and have no more than a 
five-year term of office.

III. Discussion

    Section 15E(p) of the Exchange Act, as added by Section 932(a)(8) 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act,\10\ 
requires Commission staff to conduct an examination of each NRSRO at 
least annually. Commission staff has examined JCR's satisfaction of the 
conditions in the prior orders as part of each annual examination 
conducted since 2016 and has determined that JCR currently satisfies 
the conditions in the 2023 order.
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    \10\ Public Law 111-203, 124 Stat. 1376 (2010).
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    Accordingly, the Commission finds, based on such determination and 
on JCR's representations referred to in Section II above, that it is 
appropriate in the public interest and is consistent with the 
protection of investors to grant JCR a conditional exemption, allowing 
JCR to satisfy the requirements of Section 15E(t)(2) and Section 
15E(t)(3) through the supervisory committee, subject to the conditions 
specified below. In addition, Commission staff will continue to examine 
JCR's satisfaction of the conditions to this order set forth in Section 
IV below. If the conditions are not being fulfilled to the staff's 
satisfaction, the staff will consider whether to make recommendations 
to the Commission, as appropriate.\11\
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    \11\ This order is based upon the representations made by JCR to 
the Commission in its exemptive request and supporting materials, 
including representations regarding Japanese law. It is the 
Commission's understanding that it is standard practice for credit 
rating agencies registered in Japan to appoint supervisory committee 
members to an initial term of two years, and that members commonly 
serve multiple terms. In the event of any changes to, or omissions 
in, the facts or circumstances on which this order is based, or for 
any reason in its own discretion, the Commission may modify, 
suspend, or terminate, or otherwise restrict, the terms of this 
order.
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IV. Conclusion

    For the foregoing reasons, the Commission finds that it is 
appropriate in the public interest and consistent with the protection 
of investors to grant JCR a conditional exemption allowing JCR to 
satisfy the requirements of Section 15E(t)(2) and Section 15E(t)(3) of 
the Exchange Act through the supervisory committee.
    Accordingly, pursuant to Section 36 of the Exchange Act, It Is 
Hereby Ordered that JCR is exempt from the requirements of Exchange Act 
Section 15E(t)(2) and Section 15E(t)(3), subject to the following 
conditions:
    (1) JCR will maintain a supervisory committee that meets applicable 
standards and requirements under Japanese law;
    (2) JCR will require the supervisory committee to, and the 
supervisory committee will, fulfill all of the duties mandated by 
Exchange Act Section 15E(t)(3);
    (3) JCR will promptly notify Commission staff of any changes to 
applicable Japanese law or regulations and to its internal supervisory 
committee rules and will provide a copy of the updated supervisory 
committee

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rules to the Commission staff upon request;
    (4) Any changes to applicable Japanese law or regulations, or to 
JCR's internal supervisory rules, do not conflict with the conditions 
of this order;
    (5) At least one of the independent members of the supervisory 
committee will be a user of ratings from an NRSRO;
    (6) At least half of the supervisory committee, but no fewer than 
two members, will be independent of the NRSRO, as defined in Exchange 
Act Section 15E(t)(2)(B);
    (7) The independent members of the supervisory committee will each 
serve for a total term of no more than five years;
    (8) The compensation of the independent members of the supervisory 
committee will not be linked to the business performance of JCR and 
will be arranged so as to ensure the independence of their judgment;
    (9) The deliberations of the supervisory committee will be recorded 
with sufficient specificity to enable examination by Commission staff 
upon request;
    (10) JCR will promptly notify Commission staff of any changes in 
the facts and circumstances contained in its representations;
    (11) JCR will promptly provide Commission staff with copies of all 
reports produced by the supervisory committee; and
    (12) JCR will appropriately address the Commission staff's 
recommendations in each annual Section 15E(p) examination and any other 
examinations conducted by Commission staff.

    By the Commission.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2026-22521 Filed 11-3-26; 8:45 am]
BILLING CODE 8011-01-P


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