Nationally registered credit rating agencies did not always adhere to their own established methodologies, criteria, or policies and procedures for determining ratings, a report issued by the U.S. Securities and Exchange Commission said.
The report noted several examples in which ratings agencies either failed to stick to their own criteria when examining companies, failed to disclose their methodologies when assigning ratings, or refused to follow their established protocol when providing documentation or retaining records.
For example, the report cites an instance in which one agency "did not apply any published methodology in determining the credit rating and the related press release did not cite any published methodology."
In another instance, the SEC found that one agency's review process cited the wrong methodology for one transaction, while "the rating committee memoranda for two additional transactions did not explain how the cited methodology was applied."
Although the report provides a list of rating agencies the SEC examined, it did not identify any by name when citing specific examples.
The 10 agencies named in the report were:
- A.M. Best Rating Services
- DBRS
- Egan-Jones Ratings Co.
- Fitch Ratings
- HR Ratings de Mexico
- Japan Credit Rating Agency
- Kroll Bond Rating Agency
- Moody's Investors Service
- Morningstar Credit Ratings
- S&P Global Ratings
The SEC also discovered that two agencies did not provide adequate oversight of their compliance processes, with one failing to properly "track, remediate and monitor its compliance activities" and maintained "inconsistent or inaccurate" compliance conflict-of-interest logs, while the other had "numerous, significant compliance deficiencies and weaknesses, including a consistent pattern of analysts not fully documenting key aspects of their rating analysis as required."
Some agencies also did not always adhere to their established policies and procedures concerning complaints. In one instance, an agency failed to provide the SEC with all supporting and relevant documents when it requested records for the resolution of a complaint. In the second instance, a third-party alleged that a rating was withdrawn for self-serving purposes, and the agency involved did not treat or record the allegation as a complaint.
The full report is available on the SEC's website.
