Six credit rating agencies agreed to pay combined civil penalties of more than $49 million to settle Securities and Exchange Commission charges over failure to maintain and preserve electronic communications.
The six firms admitted that their conduct violated record-keeping provisions of the federal securities laws and have begun implementing improvements to their compliance policies and procedures to address the violations, according to a Sept. 3 SEC news release.
The list of firms and their respective settlement totals are:
• Moody’s Investors Service agreed to pay a $20 million civil penalty;
• S&P Global Ratings agreed to pay a $20 million civil penalty;
• Fitch Ratings agreed to pay an $8 million civil penalty;
• HR Ratings de México agreed to pay a $250,000 civil penalty;
• A.M. Best Rating Services agreed to pay a $1 million civil penalty; and
• Demotech agreed to pay a $100,000 civil penalty.
All six firms failed to maintain and preserve off-channel communications that their employees sent and received relating to credit rating activities, the SEC said. The charged firms, expect A.M. Best and Demotch, specifically used WhatsApp to communicate, the commission said. Additionally, the messages at all six firms included discussions of initiating, determining, maintaining, monitoring, changing, or withdrawing a credit rating, according to the SEC.
At Moody’s, S&P, Fitch and HR Ratings the failures coincided with SEC examinations and investigations into the firms, which likely impacted the commission’s ability to carry out its regulatory functions and investigate compliance deficiencies and violations of the federal securities laws, the SEC noted.
Each of the credit rating agencies, with the exception of A.M. Best and Demotech, is also required to retain a compliance consultant.
A.M. Best and Demotech engaged in significant efforts to comply with the record-keeping requirements relatively early as registered credit rating agencies and otherwise cooperated with the SEC’s investigations, and, as a result, will not be required to retain a compliance consultant under the terms of their settlements, according to the SEC.
“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,” said Sanjay Wadhwa, deputy director of the SEC’s enforcement division, in the news release.
In a statement, S&P Global Ratings said it was pleased to have concluded the matter.
“S&P Global Ratings is pleased the SEC acknowledged its remedial acts and cooperation with the SEC staff,” a spokesperson added in an email. “S&P Global Ratings remains committed to compliance with its regulatory obligations,”
A Moody’s spokesperson said in an email, “Moody’s is fully committed to upholding our regulatory record-keeping obligations, and we are pleased to put this matter behind us.”
Similarly, an HR Ratings spokesperson said by email, “Over the past year, HR Ratings has significantly strengthened its electronic record-keeping policies and procedures. The settlement with the SEC underscores our firm commitment to upholding regulatory standards in every jurisdiction where we operate.”
And an A.M. Best spokesperson said in an email that the firm is “pleased that this matter has been resolved and appreciates the commission’s recognition of A.M. Best Rating Services’ historical efforts to comply with record-keeping requirements, as well as the commission’s decision that a compliance consultant is not necessary. A.M. Best places great importance on our regulatory responsibilities and remains committed to the integrity of our ratings process and high-quality independent credit ratings.”
Representatives from Fitch and Demotech could not immediately be reached for comment.
