The Dodd-Frank Act promised to usher in sweeping changes to overhaul the rating agency industry. But in the years after the Act's passage, hopes have turned into disappointment as the most important questions of how to enhance rating agency competition, accuracy, and accountability remain largely unanswered. The Securities and Exchange Commission ("SEC") has made progress in heightening oversight of the rating agency industry and addressing the most egregious abuses that fueled the financial crisis. But rating agency reforms have fallen far short of their potential due to the Act's competing, if not contradictory, objectives to simultaneously marginalize ratings, expose rating agencies to greater sunlight and private liability exposure, and treat rating agencies as a regulated industry. The most important part of the Act remains the most unresolved: the SEC's mandate to design an alternative for the current conflicts of interest created by debt issuers' selecting and paying their rating agency gatekeepers. Prospects for an independent commission to select rating agencies for structured finance products have foundered due to the challenges of crafting benchmarks for rating agency performance that are necessary for selecting rating agencies and holding them accountable. The danger is that any standard chosen for rating agencies could fuel herding effects, as rating agencies may shape their methodologies to game the system rather than to enhance the accuracy and timeliness of credit risk assessments. Given the difficulties in resolving this issue, this Article suggests that policymakers should consider alternative ways to enhance competition, such as by using regulatory incentives to break up the leading rating agencies so that smaller rating agencies can more plausibly compete. Additionally, it suggests that expanding the scope of private enforcement opportunities has the potential to leverage the self-interest of issuers to prosecute grossly negligent conduct by rating agencies. This approach would complement the SEC's ongoing efforts to foster greater competition and accountability.
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