The US Securities and Exchange Commission has fined six major credit rating organizations a total of $49 million for their failure to maintain electronic communications. The heftiest fines were levied against Moody’s Investor Services and S&P Global Ratings, which each agreed to pay a $20 million civil penalty. Fitch Ratings agreed to pay $8 million, A.M. Best Rating Services agreed to pay $1 million, HR Ratings de México, S.A. de C.V. $250,000, and Demotech agreed to pay $100,000. The firms admitted to violating recordkeeping provisions of federal securities laws, according to SEC orders.
Moody’s Ratings Employees, including senior-level employees, were found to be communicating about credit ratings activities via text messages and WhatsApp on their personal devices, as stated in an SEC order. This included an associate managing director making off-channel comments about credit rating clients. Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement, emphasized the importance of maintaining and preserving required records to ensure firms are compliant with their obligations and hold them accountable when they fall short.
With the exception of A.M. Best and Demotech, the fined firms will need to hire a compliance consultant as part of their settlements. A.M. Best and Demotech were recognized for their efforts to comply with requirements and cooperating with the investigation. Moody’s, S&P Global Ratings, Fitch Ratings, and HR Ratings de México have agreed to conduct comprehensive reviews of their policies regarding retention of electronic communications. Moody’s spokesperson expressed their commitment to upholding regulatory record-keeping obligations and being pleased to settle the matter.
HR Ratings stated in a release that they have strengthened their electronic recordkeeping policies and procedures over the past year and that the settlement with the SEC underscores their commitment to regulatory standards in all jurisdictions in which they operate. A.M. Best also appreciated the SEC’s recognition of their compliance with recordkeeping requirements and that they do not need a compliance consultant. The firm emphasized their commitment to the integrity of their ratings process and high-quality independent credit ratings.
S&P Global released a statement expressing their satisfaction in concluding the matter and their commitment to compliance with regulatory obligations, as well as the integrity of their ratings process and independent credit ratings. CNN reached out to the remaining credit rating firms for comment, but it is unclear whether any responses were received. The fines and settlements underscore the importance of maintaining proper electronic communications records in compliance with federal securities laws to ensure transparency and accountability within the financial sector.
