Five of Moody's entities in Europe have been fined a total €3.7 million ($4.4 million) for breaches relating to conflicts of interest.
The European Securities and Markets Authority also issued public notices for breaches of the Credit Ratings Agencies Regulation.
The breaches related to the issuance of credit ratings in violation of a ban on issuing ratings on entities for which the agency shareholder owns more than 10% and/or is a board member of the entity being rated; failure to disclose conflicts of interest related to a 5% ownership threshold; and inadequate internal policies and procedures to manage such conflicts, ESMA said in a statement Tuesday.
"All the breaches were found to have resulted from negligence on the part of Moody's," the statement said.
Moody's U.K. entity — Moody's Investors Service Ltd. — was fined €2.7 million for issuing new ratings in violation of the 10% ownership threshold; a lack of appropriate disclosure regarding shareholder conflicts of interest, which occurred in 206 instances for 65 rated firms; a lack of adequate policies and procedures, with ESMA finding that although there was a legal ban in place regarding the 10% threshold, the ban included an "incorrect exception"; a lack of appropriate and effective organizational and administrative arrangements, with "significant shortcomings in the data source used to identify conflicts"; and a lack of sound administrative, accounting procedures and internal control mechanisms.
ESMA also handed out fines to Moody's entities in France (€280,000), Germany (€340,000), Italy and Spain (€174,000 each). These entities were fined for a lack of appropriate disclosure regarding shareholder conflicts of interest, occurring in 72 instances for 36 rated entities.
A statement provided by a Moody's spokesman said: "Moody's Investors Service is pleased that this matter is closed. Although ESMA concluded that MIS failed to comply with certain EU rules regarding shareholder conflicts of interest during the period from 2013 to 2017, importantly, ESMA found that MIS had no intent to infringe the EU regulation and there was no impact on the quality of any ratings. ESMA also recognized the voluntary steps we have taken to prevent similar infringements in the future. We are committed to the integrity and independence of our ratings and to complying with all regulatory requirements that apply to our business."