Morningstar Credit Ratings will pay $3.5 million to settle SEC charges that it violated conflict-of-interest rules aimed at separating credit ratings and analysis from sales and marketing.
Morningstar Credit Ratings did not admit or deny the charges and cooperated with the SEC's multiyear investigation. MCR said in a statement that settlement is in the best interest of the company, and that there were no allegations of credit ratings being affected by the conduct.
"MCR takes its regulatory obligations seriously, and the integrity of its credit ratings is of paramount importance. As part of its integration with DBRS, which Morningstar acquired last year and well after the investigated activity took place, the combined DBRS Morningstar has enhanced and will further strengthen policies, procedures and internal controls. It will also conduct additional training to reinforce compliance with regulations," the statement said.
According to the SEC order, enforcement officials found that from mid-2015 through September 2016, credit rating analysts in Morningstar's asset-backed securities group engaged in sales and marketing to prospective clients and were instructed by the head of business development to identify and pursue business targets. In one example provided by the SEC, an asset-backed securities analyst at Morningstar wrote a commentary specifically aimed at a potential client issuer.
The SEC also cited Morningstar for failing to maintain written policies and to sufficiently separate the firm's analytical and business development functions during the period.
The settlement also calls for Morningstar to conduct training and change its internal controls, policies, and procedures related to the charged provisions.