The US Securities and Exchange Commission fined six major credit rating organizations a total of $49 million for their failure to keep electronic communications. Moody’s Investor Services and S&P Global Ratings faced the highest penalties, each agreeing 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 for their violations of recordkeeping provisions of federal securities laws.
The SEC orders revealed that Moody’s Ratings Employees, including those at the senior level, were using personal devices to communicate about credit rating activities through text messages and WhatsApp. This included an associate managing director making off-channel comments about credit rating clients. The firms admitted to the facts in the SEC orders, acknowledging their violations of recordkeeping requirements.
Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement, emphasized that failures to maintain and preserve required records can impede regulatory enforcement efforts and ultimately harm investors. With the exception of A.M. Best and Demotech, the credit rating firms are required to hire a compliance consultant to bolster their adherence to recordkeeping regulations. A.M. Best and Demotech were recognized for their efforts to comply with requirements and cooperate with the investigation.
Moody’s, S&P Global Ratings, Fitch Ratings, and HR Ratings de México agreed to conduct a thorough review of their policies regarding the retention of electronic communications to ensure compliance moving forward. Moody’s expressed their commitment to upholding regulatory recordkeeping obligations and concluded the matter. HR Ratings highlighted the strengthening of electronic recordkeeping policies over the past year, indicating a dedication to regulatory standards.
A.M. Best Rating Services appreciated the SEC’s recognition of their compliance with recordkeeping requirements, leading to the decision that the firm does not require a compliance consultant. The company emphasized its commitment to regulatory responsibilities and maintaining the integrity of its ratings process. S&P Global mentioned their satisfaction in concluding the matter, emphasizing their dedication to compliance with regulatory obligations and upholding the integrity of their ratings process.
CNN reached out to the remaining credit rating firms for comment on the SEC fines and requirements. The enforcement actions underscore the importance of maintaining and preserving electronic communications, not only to ensure compliance with regulatory requirements but also to protect investors. The penalties imposed serve as a reminder to financial institutions of the consequences of failing to uphold recordkeeping provisions and the need for ongoing vigilance in regulatory compliance.
