Thirty-fourth in a series on jobs whose pay system is stranger than the salary. Earlier entries followed tolls collected on money in motion: the mortgage bond seller skimming a spread each time a loan changes hands, the card network taking a slice of every swipe, the pharmacy benefit manager sitting in the middle of the prescription. The credit rating agency belongs with them, but it runs the toll booth from the strangest possible seat, because here the party being judged pays the judge. Every figure below is cited to an SEC staff report, a company's own annual report to the SEC, a federal statute, or the Financial Crisis Inquiry Commission, and where a number could not be verified at a primary source I say so rather than estimating.
In almost every entry in this series, the party who pays the toll and the party the toll protects are the same confused person. Here they are two different people, and the one who pays is not the one being protected.
A company that wants to sell bonds needs a credit rating, a grade that tells investors how likely the company is to pay them back. You might assume the investors, the people whose money is at risk, hire the grader. They do not. The company being graded hires the grader, and pays it, and can shop among firms for the grade. The investors the rating exists to protect pay nothing and choose nothing. That is the issuer-pays model, and the federal government's own regulator will tell you in writing that it is a conflict of interest baked into the foundation of the business.
Then the government makes it worse, by writing rules and blessing market practices that force the issuer to buy the grade whether it wants one or not, and from one of only three firms by name. The toll is a slice of nearly every dollar of debt sold in the capital markets. Three companies collect most of it, and the two that disclose their margins run above 60 percent.
The judge is hired and paid by the party being judged
Start with the sentence the Securities and Exchange Commission itself puts on the record.
The SEC's Office of Credit Ratings, in its 2025 staff report on the industry, describes the business model plainly. "The primary business model of the NRSROs is the 'issuer-pay' model, under which the rated entity or obligor pays a rating fee to the NRSRO for the rating." And it does not pretend the arrangement is clean. The same report continues: "This model is subject to a conflict in that the credit rating agency may be influenced to determine more favorable (i.e., higher) ratings than warranted in order to retain the obligors or issuers as clients and gain more revenue."
Read what that says. The regulator that oversees these firms states that the firm grading a bond is paid by the company that issued the bond, and that this arrangement gives the grader a financial reason to hand out grades that are too high. The client is the entity being rated. The client can take its business elsewhere. And the higher the grade, the happier the client.
The companies confirm it in their own filings. Moody's Corporation, in its annual report to the SEC, writes that "rating fees paid by debt issuers account for most of the revenue" of its ratings unit, Moody's Investors Service, and that "a substantial portion of MIS's revenue is dependent upon the dollar-equivalent volume and number of ratable debt securities issued in the global capital markets." The people paying are the issuers. The revenue rises and falls with how much debt gets sold. Nobody is paying for accuracy. They are paying to get the grade that lets the debt sell.
That is the toll booth stated cleanly. The issuer pays a fee to pass through, the fee is a slice of the debt being issued, and the investor who relies on the grade never sees a bill.
The booth is a federal license, and only three firms hold the busy one
A conflict of interest alone would not build a fortune. Plenty of businesses have conflicts and still get competed down to thin margins. What keeps this toll fat is that the booth is a government-issued license, and the license is held by a tiny club.
The designation is called an NRSRO, a Nationally Recognized Statistical Rating Organization. It is not a marketing term. It is a regulatory status granted under Section 15E of the Securities Exchange Act, and after the 2008 crisis the Dodd-Frank Act, in Section 932, created an entire Office of Credit Ratings inside the SEC to register these firms, write rules for them, and examine each one every year. To collect the toll, you need the license, and the license is a creation of statute.
How many firms hold it? Ten. As of December 31, 2025, there were ten credit rating agencies registered as NRSROs, and the SEC's 2025 examination report detailed essential findings for nine of them. And the SEC sorts them bluntly. "Solely for purposes of this Report," it writes, "Fitch, Moody's, and S&P are categorized as 'large'" NRSROs. Everyone else, firms like DBRS Morningstar, Kroll, A.M. Best, Egan-Jones, HR Ratings, and Japan Credit Rating Agency, is grouped as medium or small. The regulator does not have to guess who the Big Three are. It names them.
And the three of them hold almost the entire market. Here is the share of all outstanding U.S. credit ratings held by Fitch, Moody's, and S&P combined:
| Year | Big Three share of all outstanding U.S. ratings |
|---|---|
| 2023 | 94.15% |
| 2024 | 93.38% |
As of December 31, 2024, three firms held 93.38 percent of every outstanding U.S. rating, essentially unchanged from 94.15 percent a year earlier. The SEC has reported combined Big Three shares near or above that level for years, and even a global financial crisis these firms helped cause, followed by a landmark reform law Congress wrote specifically to loosen their grip, has barely moved the number. I am not pinning the exact pre-2023 percentages here, because those earlier figures trace to the SEC's older annual reports to Congress and could not be reconfirmed at a primary source in this pass. The fourth-largest player is not close. The SEC report notes that Morningstar, whose credit segment includes DBRS, the number four firm, took in $354.4 million in 2025. Moody's ratings unit alone took in more than eleven times that.
Why the issuer cannot simply refuse to buy a grade
Here is the part that turns a conflicted business into a captive one. An issuer does not choose to buy a rating the way you choose to buy an optional warranty. In practice it usually cannot say no, and it usually cannot go to a fourth firm even if a fourth firm would rate the deal for less.
The SEC's own report catalogs the machinery that makes this so, in a section titled barriers to entry. Investors buying bonds operate under investment guidelines, the rulebooks that say what a pension fund or an insurer is allowed to own. And, the SEC writes, "historically, many of these guidelines refer to the ratings from the large NRSROs by name (i.e., Fitch, Moody's, and S&P)." Not "an NRSRO." Not "a rating." A grade from one of three specific companies.
The bond indices do the same thing. When a bond is included in a major index, like the ones Bloomberg and FTSE run, index funds and benchmarked managers around the world are effectively obligated to hold it. The SEC report notes that index inclusion requirements "pose a similar barrier to entry," and that DBRS and KBRA, two of the smaller firms trying to compete, "have identified index inclusion requirements as a structural barrier to competition." The report even quotes an industry claim that "with limited exception, all major indices exclude securities that do not have a credit rating from Fitch, Moody's, or S&P."
Put those together and the issuer's choice disappears. If the buyers of your bond can only buy it when it carries a grade from one of three named firms, and the indices that route trillions of dollars will only include it under the same condition, then you do not get to decide whether to buy a rating. You buy one, from one of three firms, or you do not sell your debt to most of the market. The toll is mandatory, and the booth operators are named in advance.
The clearest proof that regulation itself built this captive demand is that Congress had to pass a law ordering the government to unbuild it. Dodd-Frank Section 939A directs every federal agency to review "any regulation... that requires the use of an assessment of the credit-worthiness of a security" and to "remove any reference to or requirement of reliance on credit ratings," replacing them with some other standard. You do not write a law commanding agencies to strip ratings out of their rules unless the rules were stuffed full of them. The requirement to buy the grade was written into federal regulation, which is exactly how a conflicted private grade became a thing issuers were legally steered to purchase.
What the toll is worth
Now the numbers that show what a mandatory, named-firm, license-protected grade is worth to the firm that sells it.
Moody's Investors Service, the ratings arm, reported external revenue of $4,119 million in its 2025 fiscal year, up 9 percent from $3,793 million the year before. Its adjusted operating income was $2,746 million, for an adjusted operating margin of 63.6 percent, up from 60.1 percent the prior year. Sit with that margin. For every dollar of revenue the ratings unit collected, more than 60 cents was operating profit. That is not the margin of a company that competes for its customers. It is the margin of a company that sells a license nobody else is allowed to print.
And the toll is spread across every kind of debt. Here is where Moody's ratings revenue came from in 2025:
| Moody's Investors Service line of business (FY2025) | Revenue |
|---|---|
| Corporate Finance | $2,132M |
| Financial Institutions | $759M |
| Public, Project, and Infrastructure Finance | $635M |
| Structured Finance | $558M |
| MIS Other | $35M |
| Total MIS external revenue | $4,119M |
Corporations borrowing money, banks borrowing money, cities and infrastructure projects borrowing money, and pools of loans packaged into bonds, every one of those flows is tolled. The grade on the corporate bond, the grade on the municipal bond, the grade on the mortgage pool, each one is a fee, and the fees add to more than $4 billion at a single firm.
For context, that ratings unit sits inside a larger company. Moody's Corporation's total revenue in 2025 was $7,718 million, up 9 percent, with a company-wide operating margin of 43.4 percent and diluted earnings per share of $13.67. The ratings toll booth is the high-margin heart of it. The rest of the company, which sells data and analytics in competitive markets, runs at lower margins. The 63.6 percent margin lives specifically where the license lives.
S&P Global tells the same story, if anything more starkly. Its Ratings segment brought in $4,724 million in 2025, up 8 percent, on an operating profit of $3,013 million, an operating margin of 64 percent. That margin has been climbing, from 56 percent in 2023 to 62 percent in 2024 to 64 percent in 2025. And look at what that segment does for the parent. Ratings is about 31 percent of S&P Global's $15,336 million in total revenue, but it throws off roughly 47 percent of the company's $6,478 million in total operating profit. Not quite a third of the sales, nearly half of the profit. The toll booth carries the company.
S&P also discloses something Moody's summary does not spell out as cleanly, which is that the toll comes in two forms. In 2025, transaction revenue, the one-time fees charged when new debt is issued and rated, was $2,470 million, about 52 percent of the segment. Non-transaction revenue, the recurring surveillance fees and annual relationship-pricing programs that keep charging as long as the rated bond exists, was $2,254 million, about 48 percent. So the issuer pays once to get the grade stamped on the new bond, and then keeps paying, year after year, for the agency to keep watching it. The booth charges at the on-ramp and then charges rent for the whole trip.
One honest gap. Fitch is the third of the Big Three, and I cannot give you its margin or revenue, because Fitch is owned by the privately held Hearst Corporation and files no public annual report. Its place as roughly the third-largest firm is confirmed by the SEC's market-share data, but no primary filing disclosing Fitch-specific revenue or margin was available, so I am not asserting one.
The crisis that proved the toll had a body count
If this were only a story about fat margins, it would be a story about a clever business. It is more than that, because the last time the incentive ran unchecked, it helped set the global economy on fire, and the official investigation said so in plain words.
When Congress passed Dodd-Frank, it wrote findings into the statute itself. Section 931 states that rating agencies are "of national public interest" and "central to capital formation, investor confidence, and the efficient performance of the United States economy," that they "play a critical 'gatekeeper' role in the debt market," and then the sentence that names the failure: "In the recent financial crisis, the ratings on structured financial products have proven to be inaccurate. This inaccuracy contributed significantly to the mismanagement of risks by financial institutions and investors."
The Financial Crisis Inquiry Commission, the body Congress created to write the official history of the 2008 collapse, was blunter still. Its final report concluded: "We conclude the failures of credit rating agencies were essential cogs in the wheel of financial destruction. The three credit rating agencies were key enablers of the financial meltdown. The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval. Investors relied on them, often blindly. In some cases, they were obligated to use them, or regulatory capital standards were hinged on them. This crisis could not have happened without the rating agencies."
Read the phrase "in some cases, they were obligated to use them" against everything above. The captive demand was not an accident of the crisis. It was a cause of it. Regulation had hard-wired these grades into who could buy what, so investors leaned on ratings they were required to lean on, and when the grades on mortgage bonds turned out to be wrong, the wrongness was everywhere at once. The seal of approval was the product. That is why the toll booth is dangerous in a way a beer distributor's franchise is not. When the grade the whole system is forced to trust is generated by a firm the issuer pays, and it fails, it fails for everyone who was forced to trust it.
The FCIC report also contains famous specific figures about Moody's, the number of mortgage securities it rated triple-A across the boom years, the pace of triple-A stamps in 2006, and the share of them later downgraded. I read those sentences in the primary report, but the exact digits did not extract cleanly from the source PDF in this session, a font-encoding problem in the file rather than a dispute about the facts. Because I could not confirm those specific numbers digit for digit against the primary text, I am not printing them here. The surrounding conclusion, quoted above, extracted cleanly and is what I am standing on.
What a salaried reader should take from this
The strangest toll is the one where the judged pays the judge, and the protected party pays nothing. A bond rating exists to protect the investor. The investor does not hire or pay the rater. The issuer being rated does, and can shop for the grade. The SEC says in writing that this gives the rater a financial reason to grade too high. Whenever you rely on a rating, a score, a certification, or a review, the first question is not "is it accurate" but "who paid for it." If the party being judged is the one writing the check, the grade is a marketing document wearing the costume of an objective measurement.
A conflict of interest only pays like this when a license fences off the competition. The issuer-pays conflict has existed for decades. What makes it worth 60-plus-percent margins is that the SEC's NRSRO status, the investment guidelines that name three firms, and the bond indices that exclude anyone else together make the grade mandatory and the sellers uncompetitive. This is the same engine as every high-paying entry in this series, from the taxi medallion to the card network: the margin survives not because the service is good but because the law and the market's own rulebooks have named who is allowed to sell it. A fat, stable margin is always a sign to go looking for who has been forbidden from undercutting it.
When regulation forces you to buy something, you have stopped being a customer and become a captive. The proof that ratings were mandatory is that Congress had to order federal agencies to stop requiring them. An issuer that cannot sell debt without a named-firm grade is not choosing to buy that grade any more than the pharmacy benefit manager's plan sponsor is choosing its middleman. Captive demand is the most valuable demand there is, because it does not shop and it cannot leave, and the price it pays floats free of what the service is worth.
A toll on trust can fail for everyone at once. Because regulation wired one set of grades into the whole financial system, when those grades were wrong in 2008 they were wrong for every institution forced to rely on them, simultaneously. The FCIC called the agencies essential cogs in the wheel of financial destruction. A private judgment that the public is compelled to trust concentrates risk instead of spreading it. When you see a single gatekeeper that everyone is required to believe, remember that its errors do not stay small, because nothing in the system is allowed to disagree with it until it is too late.
Related reading
- How mortgage bond sellers are paid: the chain of tolls on a single mortgage, and the crisis-era bonds these very grades stamped triple-A.
- How card networks are paid: another slice of every transaction, protected by a network no merchant can route around.
- How pharmacy benefit managers are paid: a middleman whose customers are captive and whose pricing is deliberately opaque.
- How title insurers are paid: a fee everyone at the closing table pays and no one shops, on a risk that rarely materializes.
- How taxi medallion owners are paid: a government-issued license whose entire value is a scarcity the government promises to keep.
Fact-check notes and sources
The business model, the market-share figures, and the barriers to entry come from the SEC's own staff report. The revenue and margin figures come from each company's annual report to the SEC. The statutory findings come from the Dodd-Frank Act. The crisis conclusion comes from the Financial Crisis Inquiry Commission. Where a figure is secondary, unavailable, or could not be verified, it is flagged in the text and here.
- The issuer-pays model and its conflict of interest (the quoted description that the "primary business model of the NRSROs is the 'issuer-pay' model" and that "this model is subject to a conflict"), the definition of the three "large" NRSROs by name (Fitch, Moody's, and S&P), a total of ten registered NRSROs as of December 31, 2025 (with essential examination findings reported for nine of them), the combined Big Three market share (93.38 percent as of December 31, 2024, and 94.15 percent for 2023), the barriers to entry (investment guidelines that "refer to the ratings from the large NRSROs by name," index-inclusion requirements identified by DBRS and KBRA as a structural barrier, and the quoted industry claim that "all major indices exclude securities that do not have a credit rating from Fitch, Moody's, or S&P"), and the corroborating 2025 revenue figures (Moody's roughly $4.1 billion in MIS external revenue, S&P roughly $4.7 billion in Ratings revenue, and Morningstar's $354.4 million credit segment including DBRS, the fourth-largest firm) are from the SEC Office of Credit Ratings, Staff Report on Nationally Recognized Statistical Rating Organizations (2025), a primary source. SEC pages frequently return access errors to automated fetches; figures here are cited to the published staff report PDF.
- The pre-2023 combined market-share figures that circulate for this industry (for example figures near 95 to 99 percent across 2007 through 2019) come from the SEC's earlier annual reports to Congress on NRSROs, not from the 2025 staff report, and could not be reconfirmed at a primary URL in this pass, so no specific pre-2023 percentage is asserted here. The confirmed anchors are the 94.15 percent (2023) and 93.38 percent (December 31, 2024) figures in the 2025 staff report cited above.
- The NRSRO designation as a statutory license (granted under Section 15E of the Securities Exchange Act) and the creation of the SEC's Office of Credit Ratings by Dodd-Frank Section 932, the Section 931 findings (rating agencies as a matter of "national public interest," their "critical 'gatekeeper' role," and the finding that crisis-era structured-finance ratings "have proven to be inaccurate"), and the Section 939A requirement that federal agencies "remove any reference to or requirement of reliance on credit ratings" from their regulations are from the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, a primary source.
- Moody's ratings-unit figures (Moody's Investors Service external revenue of $4,119 million in FY2025, up 9 percent from $3,793 million; adjusted operating income of $2,746 million; adjusted operating margin of 63.6 percent, up from 60.1 percent), the revenue-by-line-of-business table (Corporate Finance $2,132M, Financial Institutions $759M, Public/Project/Infrastructure Finance $635M, Structured Finance $558M, MIS Other $35M), the company-wide figures (total revenue $7,718 million, up 9 percent from $7,088 million; operating margin 43.4 percent; adjusted operating margin 51.1 percent; diluted EPS $13.67), and the statement that issuer-paid rating fees account for most of MIS revenue are from Moody's Corporation, Form 10-K for the fiscal year ended December 31, 2025, via SEC EDGAR, a primary source. These are Moody's own figures for Moody's own segments.
- S&P Global's Ratings figures (segment revenue of $4,724 million in FY2025, up 8 percent; operating profit of $3,013 million; operating margin of 64 percent, versus 62 percent in 2024 and 56 percent in 2023; Ratings as about 31 percent of the company's $15,336 million total revenue but roughly 47 percent of its $6,478 million total operating profit; transaction revenue of $2,470 million, about 52 percent, and non-transaction revenue of $2,254 million, about 48 percent) are from S&P Global Inc., Form 10-K for the fiscal year ended December 31, 2025, via SEC EDGAR, a primary source. These are S&P Global's own figures for its own segment.
- The Financial Crisis Inquiry Commission conclusion (rating agencies as "essential cogs in the wheel of financial destruction" and "key enablers of the financial meltdown," that the mortgage-related securities "could not have been marketed and sold without their seal of approval," that investors "relied on them, often blindly," that "in some cases, they were obligated to use them," and that "this crisis could not have happened without the rating agencies") is from the Financial Crisis Inquiry Commission, Final Report, January 2011, a primary source, at the Conclusions of the report.
- Not asserted, and why: Fitch Ratings' revenue and operating margin could not be given, because Fitch is owned by the privately held Hearst Corporation and files no public annual report; only its position as roughly the third-largest firm, via the SEC's ratings-count market share, is confirmed. The FCIC's specific Moody's figures (the count of mortgage securities rated triple-A across 2000 to 2007, the daily pace of triple-A stamps in 2006, and the share later downgraded) appear on the Conclusions page of the FCIC Final Report, but the exact digits did not extract cleanly from the source PDF in this session due to a font-encoding issue, so they are not printed here; verify them against the FCIC page image before quoting exact numbers. The total annual dollar volume of debt rated, the total count of all outstanding NRSRO ratings across the industry, and a single aggregate industry-wide NRSRO revenue figure were not cleanly available in the sources read and are not stated. The specific post-Dodd-Frank rules that still embed rating requirements (for example NAIC insurance risk-based-capital charges, money-market-fund eligibility, and bank capital rules) are referenced only generally by the SEC report and were not individually pulled to primary text here, so no specific surviving regulatory citation is asserted.
This post is informational and journalistic, not legal, financial, or investment advice, and nothing here is a recommendation to buy or sell any security or to rely on any rating. It describes an SEC staff report, company annual reports filed with the SEC, a federal statute, and a congressional commission's final report. Ratings, market shares, revenue, and margins change year to year, and several figures here are flagged as unavailable or unverified as noted, so verify current data before relying on any of them. Mentions of specific companies, agencies, and firms are drawn from the public record and are nominative fair use, and no affiliation is implied.
