Mandatory Registration of Credit Rating Agencies
The Administration’s proposal for mandatory registration of credit rating agencies—
which would exempt an agency if (1) it does not provide ratings of securities in
exchange for fees or other forms of compensation from the securities’ issuers; and
(2) it issues credit ratings only in any bona fide newspaper, news magazine or business
or financial publication of general and regular circulation—would comply with the
First Amendment.
October 22, 2009
LETTER OPINION FOR THE
ASSISTANT SECRETARY FOR FINANCIAL INSTITUTIONS
DEPARTMENT OF THE TREASURY
You have asked us to assess whether the Administration’s proposal
for mandatory registration of credit rating agencies, which would include
an exemption designed to address First Amendment concerns, would be
constitutional. For the reasons given below, we conclude that the Admin-
istration’s registration proposal would satisfy the First Amendment’s
requirements. 1
Under existing law, a credit rating agency may “elect[] to be treated as
a nationally recognized statistical rating organization” by furnishing an
application demonstrating that it meets certain criteria. 15 U.S.C. § 78o-
7(a)(1)(A) (emphasis added). A registered credit rating agency receives
certain benefits by being a “nationally recognized rating organization”
and must abide by certain statutory requirements. See id. § 78o-7. As
we understand it, the Administration wishes to amend the law to make
1 Our conclusion assumes that application of the particular requirements and limita-
tions that would be required of registered agencies would be tailored in accord with First
Amendment requirements so that there would be no unconstitutional constraints imposed
on the speech of registered agencies. We have not had sufficient time to consider the
various particular regulatory requirements, either under the existing statute or in the
Administration’s proposal, and we express no view on whether any particular requirement
would be constitutionally permissible as applied to the publication or conveyance of
particular credit ratings. It is our understanding that, under the Administration’s proposal,
those requirements and limitations would only take effect once the Securities and Ex-
change Commission issues regulations implementing the new statute—regulations that
that would have to reflect any exemptions or limitations the First Amendment may
require.
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Mandatory Registration of Credit Rating Agencies
it mandatory for credit rating agencies to register as nationally recognized
statistical rating organizations—to the extent consistent with the Constitu-
tion. The current definition of “credit rating agency” is any person
(A) engaged in the business of issuing credit ratings on the Internet
or through another readily accessible means, for free or for a reason-
able fee, but does not include a commercial credit reporting compa-
ny;
(B) employing either a quantitative or qualitative model, or both,
to determine credit ratings; and
(C) receiving fees from either issuers, investors, or other market
participants, or a combination thereof.
Id. § 78c(a)(61).
A requirement that all “credit rating agen[cies]” so defined register
with the federal government would implicate the First Amendment be-
cause such a requirement may impose at least some burden on their
speech activities—namely, “issuing credit ratings on the Internet or
through another readily accessible means, for free or for a reasonable
fee.” “As a matter of principle,” the Supreme Court has explained, “a
requirement of registration in order to make a public speech would seem
generally incompatible with an exercise of the rights of free speech and
free assembly.” Thomas v. Collins, 323 U.S. 516, 539 (1945); see also id.
at 540 (“If the exercise of the rights of free speech and free assembly
cannot be made a crime, we do not think this can be accomplished by the
device of requiring previous registration as a condition for exercising
them and making such a condition the foundation for restraining in ad-
vance their exercise and for imposing a penalty for violating such a re-
straining order.”).
In light of these First Amendment concerns, analogous registration
requirements in other financial regulatory statutes include exemptions
designed to avoid constitutional problems. The Investment Advisers Act,
for example, contains an exemption from its registration requirement for
“the publisher of any bona fide newspaper, news magazine or business or
financial publication of general and regular circulation.” 15 U.S.C. § 80b-
2(a)(11). And the Commodity Futures Trading Commission has adopted
by regulation an exemption from the registration requirement of the
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33 Op. O.L.C. 330 (2009)
Commodity Exchange Act for any person that “does not engage in . . .
[d]irecting client accounts; or . . . [p]roviding commodity trading advice
based on, or tailored to, the commodity interest or cash market positions
or other circumstances or characteristics of particular clients; or . . . [i]f,
as provided for in section 4m(1) of the Act, during the course of the
preceding 12 months, it has not furnished commodity trading advice to
more than 15 persons and it does not hold itself out generally to the public
as a commodity trading advisor.” 17 C.F.R. § 4.14(a)(9), (10).
The Administration’s proposal mirrors these other financial regulatory
statutes. The proposal would exempt from the registration requirement
any credit rating agency that satisfies two criteria: (i) it does not provide
ratings of securities in exchange for fees or other forms of compensation
from the securities’ issuers; and (ii) it issues credit ratings only in any
bona fide newspaper, news magazine or business or financial publication
of general and regular circulation. 2
Although the precise line for First Amendment purposes is not ab-
solutely clear in this area, we believe that a mandatory registration re-
quirement for credit rating agencies that contained such an exemption
would comply with the First Amendment. We begin with the prong of
the exemption that would require credit rating agencies to issue credit
ratings only in any bona fide newspaper, news magazine or business or
financial publication of general and regular circulation. This prong of
the exemption derives from the Supreme Court’s treatment of the similar
Investment Advisers Act exemption in Lowe v. Securities and Exchange
Commission, 472 U.S. 181 (1985).
In that case, the Securities and Exchange Commission had sought to
enjoin Lowe from publishing an investment advice newsletter because it
had previously revoked his registration as an investment adviser under the
Act, due to his conviction for a series of financial crimes. Particularly in
light of the “important constitutional question” raised by such a bar on
publication, the Court read the Act’s exemption for the “publisher of any
bona fide newspaper, news magazine or business or financial publication
2The second criterion is adapted from the current Investment Advisers Act, which, as
we explain below, the Supreme Court has construed so as to avoid First Amendment
concerns. We assume the criterion in the proposed exemption would be given a similar
construction.
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Mandatory Registration of Credit Rating Agencies
of general and regular circulation” broadly to shield Lowe’s newsletter,
which reached an audience of between 3,000 and 19,000 subscribers. Id.
at 188, 185. The Court further held that although Lowe’s publication of
his securities newsletters had not been “regular” in the sense of consistent
circulation—in that the newsletters had not been published on a regular
semimonthly basis as advertised—they were nevertheless “regular” for
purposes of the Investment Advisers Act because there was “no indication
that they have been timed to specific market activity, or to events affect-
ing or having the ability to affect the securities industry.” Id. at 209. The
Court explained that its reading of the Act was informed by “the apparent
intent of Congress to keep the Act free of constitutional infirmities.” Id. at
207. The majority contrasted the character of Lowe’s newsletter publish-
ing, which it implied was entitled to strong First Amendment protection,
with professional services involving speech that may be subjected to
regulation without offending the First Amendment, such as the provision
of legal advice by lawyers to their clients. The former, the Court empha-
sized, involved “communications [with] subscribers [that] remain entirely
impersonal and,” unlike the latter, “do not develop into the kind of fiduci-
ary, person-to-person relationships that were discussed at length in the
legislative history of the Act and that are characteristic of investment
adviser-client relationships.” Id. at 210; see also id. at 210 n.57 (noting
that it was “significant” that Lowe did not engage in “individualized,
investment-related interactions” with his subscribers).
In a separate opinion in Lowe by Justice White, three Justices found
that the Act’s statutory “publisher” exemption could not be construed to
apply to Lowe’s irregular publication, and therefore addressed the First
Amendment question directly. They observed that the “power of govern-
ment to regulate the professions is not lost whenever the practice of a
profession entails speech,” id. at 228, “[b]ut the principle that the gov-
ernment may restrict entry into professions and vocations through licens-
ing schemes has never been extended to encompass the licensing of
speech per se or of the press. . . . At some point, a measure is no longer a
regulation of a profession but a regulation of speech or of the press;
beyond that point, the statute must survive the level of scrutiny demanded
by the First Amendment.” Id. at 229–30. In attempting to “locate the point
where regulation of a profession leaves off and prohibitions on speech
begin,” Justice White wrote,
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33 Op. O.L.C. 330 (2009)
[o]ne who takes the affairs of a client personally in hand and pur-
ports to exercise judgment on behalf of the client in the light of the
client’s individual needs and circumstances is properly viewed as
engaging in the practice of a profession. Just as offer and acceptance
are communications incidental to the regulable transaction called a
contract, the professional’s speech is incidental to the conduct of the
profession. If the government enacts generally applicable licensing
provisions limiting the class of persons who may practice the profes-
sion, it cannot be said to have enacted a limitation on freedom of
speech or the press subject to First Amendment scrutiny. Where the
personal nexus between professional and client does not exist, and a
speaker does not purport to be exercising judgment on behalf of any
particular individual with whose circumstances he is directly ac-
quainted, government regulation ceases to function as legitimate
regulation of professional practice with only incidental impact on
speech; it becomes regulation of speaking or publishing as such, sub-
ject to the First Amendment’s command that “Congress shall make
no law . . . abridging the freedom of speech, or of the press.”
Id. at 232 (emphasis added); see also Thomas, 323 U.S. at 544–45 (Jack-
son, J., concurring) (“Though the one may shade into the other, a rough
distinction always exists, I think, which is more shortly illustrated than
explained. A state may forbid one without its license to practice law as a
vocation, but I think it could not stop an unlicensed person from making a
speech about the rights of man or the rights of labor, or any other kind of
right, including recommending that his hearers organize to support his
views. Likewise, the state may prohibit the pursuit of medicine as an
occupation without its license, but I do not think it could make it a crime
publicly or privately to speak urging persons to follow or reject any
school of medical thought.”).
In accord with the majority and concurring opinions in Lowe regarding
the line between impermissible regulations on speech and “merely per-
missible regulation of a profession,” we think the First Amendment con-
cerns that a mandatory registration requirement may raise are addressed
by an exemption for agencies that supply ratings tailored to meet the
needs of individual clients. The Court has adopted a somewhat similar
line in determining whether credit reports constitute matters of public
concern warranting heightened protection in defamation actions. See
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Dun & Bradstreet v. Greenmoss, 472 U.S. 749, 761–63 (1985) (plurality
opinion) (concluding that a credit report issued confidentially to five
subscribers did not constitute speech about a matter of public concern
requiring a plaintiff to show “actual malice” in a defamation suit). 3 The
distinction between the provision of advice tailored to meet the needs of
individual clients, on the one hand, and publication of opinions to a wide
audience, on the other, supports the second prong of the Administration’s
proposed exemption, i.e., that credit rating agencies would be exempt
from registration only if they “issue credit ratings only in any bona fide
newspaper, news magazine or business or financial publication of general
and regular circulation.” If a credit rating agency provides ratings to select
investor clients, tailoring the speech it undertakes to those clients’ needs,
it is engaged in the sort of speech akin to that of other professionals when
3 In accord with Dun & Bradstreet, lower courts considering credit rating agencies’
First Amendment defenses to claims for defamation, fraud, and various other business
torts (as well as breach of contract in at least one instance) have looked in part to whether
the reports were distributed to a public audience or tailored to a discrete group of clients.
See, e.g., Compuware Corp. v. Moody’s Investors Servs., Inc., 499 F.3d 520, 525–34 (6th
Cir. 2007) (affirming grant of summary judgment in favor of credit rating agency defend-
ant on defamation and breach of contract claims based on “actual malice” requirement
where ratings were made available to the public); Abu Dhabi Commercial Bank v. Morgan
Stanley & Co., No. 08-Civ-7508 (SAS), 2009 WL 2828018, *9 (S.D.N.Y. Sept. 2, 2009)
(rejecting First Amendment defense to various common law tort claims, including fraud,
in part because “plaintiffs have plainly alleged that the . . . ratings were never widely
disseminated, but were provided instead in connection with a private placement to a select
group of investors”); In re Nat’l Century Fin. Enters., Inc., Inv. Litig., 580 F. Supp. 2d
630, 640 (S.D. Ohio 2008) (rejecting First Amendment defense to securities fraud and
various common law claims in part because ratings disseminated to a “select class of
investors”); In re Enron Corp., 511 F. Supp. 2d 742, 820 (S.D. Tex. 2005) (finding that
the First Amendment shielded credit rating agency from negligent misrepresentation
claim where the “credit rating reports regarding Enron by national credit rating agencies
were not private or confidential, but distributed ‘to the world’ and were related to the
creditworthiness of a powerful public corporation that operated internationally”). At least
one court of appeals has invoked the same consideration as one of its reasons for ruling
that a credit rating agency could not avail itself of a statutory state-law journalist’s
privilege to refuse to comply with a subpoena. In re Fitch, Inc., 330 F.3d 104, 109 (2d
Cir. 2003) (“Unlike a business newspaper or magazine, which would cover any trans-
actions deemed newsworthy, Fitch only ‘covers’ its own clients.”); see also id. at 110
(“Fitch’s information-disseminating activity does not seem to be based on a judgment
about newsworthiness, but rather on client needs. We believe this weighs against Fitch
being able to assert the privilege for the information at issue.”).
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they advise their clients—speech that is constitutionally distinct from the
publication of facts or opinions to the public at large. See Taucher v.
Born, 53 F. Supp. 2d 464 (D.D.C. 1999) (Commodity Exchange Act
requirement that commodity trading advisors register with Commodity
Futures Trading Commission was unconstitutional as applied to publish-
ers of general commodity trading information strategy and advice, and
trading systems, who made general buy and sell recommendations not
tailored to any specific individuals, and never had contact with individual
investors).
Indeed, federal courts have repeatedly rejected First Amendment chal-
lenges to professional licensing statutes as applied to persons who provide
services to particular clients, and do not simply offer published advice or
information to the general public. See, e.g., Nat’l Ass’n for the Advance-
ment of Psychoanalysis v. Cal. Bd. of Psychology, 228 F.3d 1043, 1053–
55 (9th Cir. 2000) (psychologists/psychoanalysts); Lawline v. Am. Bar
Ass’n, 956 F.2d 1378, 1386 (7th Cir. 1992) (lawyers); Accountant’s Soc’y
of Va. v. Bowman, 860 F.2d 602, 603–05 (4th Cir. 1988) (accountants);
Fidelity Nat’l Info. Solutions, Inc. v. Sinclair, No. Civ. A. 02-6928, 2004
WL 764834 (E.D. Pa. Mar. 31) (real estate appraisers); see also Planned
Parenthood of Se. Pa. v. Casey, 505 U.S. 833, 884 (1992) (plurality
opinion) (rejecting doctors’ argument that they had a First Amendment
right not to provide information to their patients about the risks of abor-
tion, and childbirth, in a manner mandated by state statute; “[t]o be sure,
the physician’s First Amendment rights not to speak are implicated, . . .
but only as part of the practice of medicine, subject to reasonable licens-
ing and regulation by the State”). These precedents provide support for
the application of the registration requirement to credit rating agencies
that do not limit their issuance of credit ratings only to any bona fide
newspaper, news magazine or business or financial publication of general
and regular circulation.
The same reasons that support the constitutionality of mandatory regis-
tration for credit ratings agencies that do not satisfy the general publica-
tion criterion described above also support application of that registration
requirement to any credit rating agency that receives fees or other forms
of compensation from issuers of securities in return for its provision of
ratings. Just as a credit ratings agency may be required to register, in
accord with the distinction set forth in Lowe, if it provides individualized
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advice to client investors, so too can registration be required if the agency
provides its ratings (even to a public audience) as a professional service
on behalf of individual issuers of securities. When a credit rating agency
is hired by a particular issuer to rate a particular security, it is providing a
particular client with a valuable professional service tailored to that cli-
ent’s needs, one for which the issuer-client is willing to pay, presumably
because it believes the agency will “exercise judgment on behalf of the
client,” Lowe, 472 U.S. at 232 (White, J., concurring), in order to advance
the issuer’s own commercial goals. Cf. Commercial Fin. Servs., Inc. v.
Arthur Andersen LLP, 94 P.3d 106, 110 (Okla. Civ. App. 2004) (rating
agencies sued by issuer that hired it not protected by First Amendment
against liability for negligent misrepresentation because “[w]hile the
Rating Agencies gave ‘opinions,’ they did so as professionals being paid
to provide their opinions to a client”). 4
This conclusion is bolstered by our understanding, based on infor-
mation provided by officials at the Treasury Department, that a payment
by an issuer to a credit rating agency in exchange for issuance of a rating
ordinarily entails receipt of the rating by the issuer in advance of public
disclosure, and the opportunity for discussion and exchange between the
issuer and agency during the development of the rating. In this respect,
this criterion of the proposed exemption would appear to be similar to an
element of the exemption under the Commodity Exchange Act for “com-
modity trading advice based on, or tailored to, the commodity interest or
cash market positions or other circumstances or characteristics of particu-
lar clients.” 17 C.F.R. § 4.14(a)(9). To be sure, in developing the rating
for the client, the credit rating agency may provide a neutral and candid
assessment, using professional methods. But the same is true of account-
ants and other professionals when they give their clients advice, and yet
4 We recognize that at least two lower courts, in determining whether a credit rating
agency was entitled to the benefit of a statutory journalist’s privilege, have rejected the
significance of the fact that the agency had been hired by the issuer. See In re Pan Am
Corp., 161 B.R. 577 (S.D.N.Y. 1993); In re Scott Paper Co., 145 F.R.D. 366 (E.D. Pa.
1993). But the lower courts are divided on that issue, even in the context of that analogous
statutory question. See Fitch, 330 F.3d 104 (discussed supra note Error! Bookmark not
defined.). Moreover, the considerations relevant to the application of the statutory
journalist’s privilege may differ from those that determine the constitutional permissibil-
ity of a registration requirement.
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33 Op. O.L.C. 330 (2009)
those professionals may be required to register consistent with the First
Amendment. Admittedly, even issuer-paid agencies typically convey their
ratings to the public. But other professionals who may be required to
register also may subsequently convey to a wider audience some of the
information the client has retained them to provide. It is the fact of the
individualized provision of a service to a client that supports the registra-
tion requirement in either case. Although widespread publication of their
ratings may be more central to the service provided by credit rating agen-
cies than is the less frequent public speech by members of regulated
professions acting on behalf of their clients (such as when a lawyer pub-
licly discloses an advice of counsel letter), this appears to us to be a
difference of degree rather than of kind. Cf. Lowe, 472 U.S. at 231
(White, J., concurring) (“the distinguishing factor was whether the speech
in any particular case was ‘associat[ed] . . . with some other factor which
the state may regulate so as to bring the whole within official control’”
(quoting Thomas, 323 U.S. at 547)). In light of the context-specific analy-
sis courts have followed in assessing First Amendment protections in such
cases, we believe findings reflecting the realities of how credit rating
agencies operate in providing ratings, such as those that would support the
representations made to us by the Treasury Department, would bolster the
legal basis for a mandatory registration requirement.
DAVID J. BARRON
Acting Assistant Attorney General
Office of Legal Counsel
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