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The U.S. Securities and Exchange Commission (SEC) has fined six major credit rating agencies a combined total of $49 million for failing to properly maintain and preserve electronic communications, as required by federal securities laws. These fines address what the SEC has described as “significant failures” in recordkeeping, which involved both the firms and their personnel.
Among the rating agencies penalized, Moody’s Investor Services and S&P Global Ratings faced the largest fines, each agreeing to pay $20 million. Fitch Ratings was fined $8 million, while A.M. Best Rating Services, HR Ratings de México, and Demotech received penalties of $1 million, $250,000, and $100,000, respectively.
The fines stem from violations of federal securities laws, specifically around recordkeeping provisions. Employees, including senior management, used personal devices and non-compliant communication channels like text messaging and WhatsApp to discuss credit rating activities, which undermined the transparency and accountability required by regulations.
In one instance, an associate managing director at Moody’s made off-channel comments about credit rating clients, underscoring the widespread nature of these violations. The SEC has consistently stressed the importance of accurate and complete recordkeeping to ensure firms comply with federal securities laws and maintain investor confidence.
Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement, emphasized, “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.”
This enforcement action serves as a clear message to all regulated entities about the critical importance of adhering to recordkeeping requirements. The SEC highlighted that non-compliance risks not only substantial financial penalties but also compromises regulatory oversight, potentially harming market integrity and investors.
In addition to the monetary fines, the SEC has mandated that Moody’s, S&P Global Ratings, Fitch Ratings, and HR Ratings de México conduct comprehensive reviews of their electronic communication retention policies. These firms, excluding A.M. Best and Demotech, are also required to hire compliance consultants to ensure future adherence to regulatory standards.
A.M. Best and Demotech were exempted from the compliance consultant requirement, as the SEC acknowledged their significant efforts to comply with recordkeeping regulations and their cooperation during the investigation. This distinction illustrates the SEC’s willingness to recognize and reward proactive compliance initiatives, even in the context of broader enforcement actions.
The firms involved have expressed their commitment to improving regulatory compliance. A Moody’s spokesperson commented, “Moody’s is fully committed to upholding our regulatory record-keeping obligations, and we are pleased to put this matter behind us.” Similarly, S&P Global emphasized its commitment to the integrity of its ratings process and stated, “We take compliance with regulatory obligations very seriously.”
HR Ratings also acknowledged the SEC’s findings and emphasized that it has “significantly strengthened its electronic recordkeeping policies and procedures” over the past year. A.M. Best expressed appreciation for the SEC’s recognition of its compliance efforts and reiterated its commitment to maintaining high standards within its ratings operations.
This enforcement action highlights the SEC’s ongoing focus on ensuring that financial institutions adhere to regulatory requirements, with recordkeeping remaining a key area of scrutiny for the protection of investors and the preservation of market transparency.
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