Credit rating agencies, although still “evolving" since their role in the financial crisis, are improving compliance efforts and becoming “more competitive and transparent."

That's the assessment offered by Thomas Butler, director of the Securities and Exchange Commission's Office of Credit Ratings, upon release of an annual staff report on Nationally Recognized Statistical Rating Organizations submitted to Congress on Christmas Eve.

The Dodd-Frank Act requires the SEC to examine NRSRO at least annually and issue a report summarizing key findings and recommendations. Among the areas examined are how they manage conflicts of interest maintain effective internal controls. The 2013 examination report highlights improvements including increased investment in compliance systems and infrastructure, along with enhancements in compliance training for both analytical and non-analytical employees.

The news wasn't all positive. Examiners found that four smaller NRSROs did not have sufficient procedures and controls for separating business and analytical functions or for preventing rating analysts from being involved in fee discussions and from having access to rating fee information. SEC staff subsequently recommended corrective actions, including revising procedures, modifying the office floor plan, improving controls, and hiring additional staff.

At one larger and five smaller NRSROs not all rating procedures were followed and at six of the smaller entities recordkeeping procedures were found to be lax. Also, at one smaller firm, examiners found instances where third parties inadvertently emailed rating analysts fee information. The firm did, however, identify the issue, take corrective actions, and develop new communication protocols.

Beyond the ongoing examinations and annual reports, the SEC has also proposed new rules to implement other Dodd-Frank Act requirements pertaining to NRSROs. These include: filing annual reports on internal controls; addressing conflicts of interest with respect to sales and marketing concerns; conducting “look-back” reviews of ratings in which former employees participated to determine whether employment opportunities influenced their work; disclosing  third-party due diligence reports for asset-backed securities; and establishing professional standards for training credit rating analysts.