SEC fines credit rating firms $49M for record-keeping flaws
Sept. 4, 2024
Employees at some of the firms routinely discussed credit ratings on their personal communication devices, the SEC said.
Dive Brief:
The Securities and Exchange Commission charged six ratings firms for flawed handling of electronic communications, imposing $49 million in penalties and extending the reach of a crackdown that has targeted financial services companies for failing to maintain records of texts and other “off-channel” messages.
The ratings firms acknowledged breaking the SEC’s record-keeping rules, the agency said Tuesday, adding that S&P Global and Moody’s Investors Service will each pay a $20 million civil penalty while Fitch Ratings will pay $8 million.
“We have seen repeatedly that failures to maintain and preserve required records can hinder the staff’s ability to ensure that firms are complying with their obligations and the commission’s ability to hold accountable those that fall short of those obligations, often at the expense of investors,” Sanjay Wadhwa, deputy director of the SEC’s Enforcement Division, said in a statement.
Dive Insight:
The SEC last month fined Ameriprise Financial Services, Edward D. Jones, Raymond James and 23 other financial services companies a total of $390 million for breaking federal record-keeping laws. The firms admitted to the facts of their SEC orders, the agency said.
In September 2023, the SEC charged Robert W. Baird & Co., William Blair & Company, Interactive Brokers Corp. and seven other firms with record-keeping failures, imposing combined penalties of $79 million.
Employees at some of the ratings firms, including those at senior levels, have routinely communicated through texts and messaging platforms such as WhatsApp when discussing a range of issues, including changing or withdrawing a credit rating, the SEC said.
“Moody’s is fully committed to upholding our regulatory record-keeping obligations, and we are pleased to put this matter behind us,” a Moody’s spokesperson said by email.
S&P said in a statement that it “takes compliance with regulatory obligations very seriously and is committed to the integrity of its ratings process and high-quality independent credit ratings.”
S&P added that the SEC noted its “remedial acts and its cooperation with the SEC staff.”
Fitch did not respond to a request for comment.
HR Ratings de México agreed to pay a $250,000 civil penalty, while A.M. Best Rating Services and Demotech will pay penalties of $1 million and $100,000, respectively.
The SEC required the ratings firms — with the exception of A.M. Best and Demotech — to retain a compliance consultant.
The two firms “engaged in significant efforts to comply with the recordkeeping requirements relatively early as registered credit ratings agencies and otherwise cooperated with the SEC’s investigations,” the agency said.
[CFO Dive]
