SEC Fines Moody's, S&P, Other Credit Rating Agencies Over Recordkeeping Failures

The U.S. Securities and Exchange Commission has fined six major credit rating organizations a total of $49 million for significant failures to maintain and preserve electronic communications.

Admitting the facts in their respective SEC orders, Moody’s Investor Service Inc. and S&P Global Ratings agreed to pay a $20 million civil penalty each. Further, Fitch Ratings Inc. 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 Inc. agreed to pay $100,000.

Following the charges against the six nationally recognized statistical rating organizations, or NRSROs, the respective companies acknowledged that their conduct violated recordkeeping provisions of the federal securities laws.

According to an SEC order, Moody’s Ratings employees, including those at senior levels, have communicated using personal mobile devices by text message and other messaging platforms, such as WhatsApp, since at least January 2020.

The companies have agreed to pay the civil penalties, and also have begun implementing improvements to their compliance policies and procedures to address these violations.

Each of the credit rating agencies, with the exception of A.M. Best and Demotech, is also required to retain a compliance consultant, the SEC noted. These four firms have also agreed to, among other things, conduct comprehensive reviews of their policies and procedures relating to the retention of electronic communications.

Meanwhile, A.M. Best and Demotech are exempted from retaining a compliance consultant as they were engaged in significant efforts to comply with the recordkeeping requirements relatively early, and also cooperated with the SEC’s investigations.

Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement, said, “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. In today’s actions, the Commission once again makes clear that there are tangible benefits to firms that make significant efforts to comply and otherwise cooperate with the staff’s investigations.”

Responding to the order, S&P Global Ratings, a division of S&P Global, said in a statement that it takes compliance with regulatory obligations very seriously and is committed to the integrity of its ratings process and high-quality independent credit ratings.