SEC fines credit rating companies $49 million for record-keeping flaws

Dive Summary:

• The Securities and Exchange Commission has sued six ratings agencies for mishandling electronic communications, imposing $49 million in penalties and expanding a crackdown on financial services companies for failing to keep records of text messages and other “off-channel” messages.
• Rating companies agreed Violating the SEC’s record keeping rulesS&P Global and Moody’s Investors Service will each pay $20 million in penalties, while Fitch Ratings will pay $8 million, the agency added in a statement on Tuesday.
• “We have seen time and again that failures to maintain and maintain required records hinder staff’s ability to ensure that firms meet their obligations and the commission’s ability to hold those who fail to meet those obligations accountable, often to the detriment of investors,” said Sanjay Wadhwa, deputy director of the SEC’s Division of Enforcement. in a statement.

Diving Insight:

TLast month, the SEC imposed a total of $390 million in fines on Ameriprise Financial Services, Edward D. Jones, Raymond James and 23 other financial services companies violating federal records retention lawsCompanies The agency said it accepted the authenticity of the SEC orders.

SEC in September 2023 He accused Robert W. Baird & Co., William Blair & Company, Interactive Brokers Corp. and seven other firms of record-keeping errors, influential unified $79 million fine.

The SEC said employees at some ratings companies, including senior executives, regularly communicated via text messages and messaging platforms such as WhatsApp when discussing a range of issues, including changing or withdrawing credit ratings.

“Moody’s is fully committed to meeting our regulatory recordkeeping obligations and we are pleased to put this matter behind us,” a Moody’s spokesperson said in an emailed statement.

S&P said in a statement: It said it “takes compliance with its regulatory obligations very seriously and is committed to the integrity of its rating process and high-quality independent credit ratings.”

S&P added that it noted the SEC’s “remedial actions and cooperation with SEC staff.”

Fitch did not respond to a request for comment.

HR Ratings from Mtoxico agreed to pay a $250,000 fine, while AM ​​Best Rating Services and Demotech will pay fines of $1 million and $100,000, respectively.

The SEC required rating companies, with the exception of AM Best and Demotech, to retain a compliance consultant.

“The two firms made significant efforts to comply with recordkeeping requirements relatively early on by registering with credit rating agencies and cooperating with the SEC’s investigations,” the agency said.