There have been various attempts to regulate the CRA industry in the United States, at the transnational level and by the European Union over recent decades. The global financial crisis of 2008 represents a turning point in these efforts, when there was a clear shift from a light- touch approach of self- regulation to a mandatory system of CRA supervision and regulation. As we will see, despite these reforms there are limits to addressing the rating problems encountered during the GFC.

US efforts

In the United States, the relationship between government regulation and CRAs first began as late as the 1970s. This happened indirectly through bond regulations of financial institutions. In 1975 the SEC introduced rule 15c3- 1, also known as the net capital rule. Investors purchasing bonds rated in the investment- grade category by at least two nationally recognized statistical rating organizations (NRSROs) had to hold fewer reserves against these bonds. The SEC did not formally specify the eligibility criteria for NRSRO status. This led to an ambivalent constellation: Although regulators started to use credit ratings for regulatory purposes, CRAs themselves continued to be largely free of regulation (Hiss & Nagel 2014: 132).

In the wake of the Enron scandal in 2001, the United States led attempts to abandon the CRA self- regulation paradigm. CRAs were criticized for having missed Enron's towering accounting frauds. CRAs failed to fulfil their role as the market's watchdogs or “gatekeepers” (Coffee 2006). Moody's and S&P's downgraded Enron's credit rating below investment grade only four days before the company filed for bankruptcy on 2 December 2001 (Coffee : 247).

In hearings before the Committee on Governmental Affairs of the US Senate, invited experts suggested regulating the CRAs for the first time (Hiss & Nagel 2011 2014: 133). These calls became louder during the course of the WorldCom scandal in 2002. As in the case of Enron, the CRAs were criticized for having failed to spot the breakdown and accounting frauds of the company in time. WorldCom filed for bankruptcy on 22 July 2002. Both Moody's and S&P's had downgraded the company below investment grade only two months beforehand (Langohr & Langohr 2008: 14).