Egan-Jones Responds to SEC Denial of Exemptive Relief Application

Egan-Jones Declares Its Discontent Over SEC Decision

In a recent statement, Egan-Jones Ratings Company addressed the Securities and Exchange Commission's (SEC) ruling made on March 23, 2026, which denied Egan-Jones’ request for an exemption from SEC Rule 17g-5. This rule restricts the amount of business a credit rating agency can receive from a single client in a single year. Specifically, this regulation stipulates that if a client's net revenue to the rating agency exceeds 10% of the agency’s total net revenue for the last fiscal year, the agency cannot issue or maintain a credit rating for that client.

Egan-Jones, a smaller Nationally Recognized Statistical Rating Organization (NRSRO), found itself in a challenging situation when a client unexpectedly requested numerous ratings towards the end of 2025. This request led to the agency exceeding the 10% revenue threshold, prompting a plea for an exemption to be able to fulfill this unique need.

However, the SEC's Order contended that the exemption was neither essential for public interest nor conducive to investor protection, dismissing the request based on a lack of perceived necessity. Sean Egan, founder and CEO of Egan-Jones, voiced that this decision was fundamentally misguided. He emphasized that the SEC’s rationale leaned on trivial distinctions compared to past exemptions granted under similar circumstances. Egan argued that the agency's client base is distinct, as most of its revenue comes from investors rather than the companies themselves seeking ratings.

This investor-driven revenue model, according to Egan, reduces inherent conflicts of interest compared to traditional models where issuers pay for ratings. Egan voiced strong concern that the SEC's ruling is counterproductive to competitiveness in the industry, stating, "The SEC's decision only has the effect of stifling increased competition."

The denied exemption request was not just a regular occurrence; it stemmed from an atypical situation that arose late in 2025 when the client had a sudden and unforeseen demand for ratings that needed immediate attention. Egan emphasized that allowing a small, one-time exemption could have brought significant benefits both for his firm and the market at large, considering that Egan-Jones accounts for only about 0.67% of the ratings market.

Furthermore, the purpose of the 10% Rule is to mitigate conflicts of interest by regulating how much power individual clients can hold over rating agencies. Egan-Jones argued that as a smaller agency, the business is naturally concentrated, linking the revenue significantly more to individual clients.

Historically, the SEC has recognized that smaller entities are more vulnerable to such regulatory limitations, and Sean Egan reminded that previous exemptions were often granted to foster competition within the space. Not granting this request, he asserted, is inherently anti-competitive and limits Egan-Jones from serving its clients fully.

The statement also highlighted that Egan-Jones rigorously respects compliance with SEC rules and emphasized that the request for exemption was closely monitored and timed accordingly.

Sean Egan finalized his remarks by calling attention to the impracticality of preventing smaller firms from receiving temporary exemptions, especially when the situations arise from unique business needs requiring flexibility in regulations.

In the wake of the SEC’s ruling, the sentiment from Egan-Jones underscores the broader implications that such regulatory decisions can have not only on agency operations but also on the competitive landscape of the credit rating industry, where the majority of ratings are still dominated by larger firms. Egan-Jones continues to advocate for a more equitable regulatory environment that acknowledges the necessities of smaller firms within the financial ratings marketplace.

_Egan-Jones Ratings Company, established in 1995, is devoted to providing precise and timely credit ratings and proxy advisory services._