The U.S. Securities and Exchange Commission (SEC) has imposed fines totaling $49 million on six major credit rating organizations for significant lapses in maintaining and preserving electronic communications.
Moody's Investor Service Inc. and S&P Global Ratings have both agreed to pay $20 million each, while Fitch Ratings Inc. will pay $8 million. A.M. Best Rating Services will pay $1 million, HR Ratings de México, S.A. de C.V. will pay $250,000, and Demotech Inc. will pay $100,000.
Each of these companies, recognized as Nationally Recognized Statistical Rating Organizations (NRSROs), has admitted to violating federal securities laws related to recordkeeping.
An SEC order highlighted that since at least January 2020, Moody's Ratings employees, including those in senior positions, had been using personal mobile devices and platforms such as WhatsApp for work communications.
The companies have agreed to the penalties and have started enhancing their compliance policies to address these violations.
Apart from A.M. Best and Demotech, the credit rating agencies are also required to hire a compliance consultant, as noted by the SEC. These four firms have committed to conducting comprehensive reviews of their policies and procedures regarding the retention of electronic communications.
A.M. Best and Demotech are exempt from retaining a compliance consultant due to their early and significant efforts to meet the recordkeeping requirements and their cooperation with the SEC's investigations.
Sanjay Wadhwa, Deputy Director of the SEC's Division of Enforcement, commented, "Failures to maintain and preserve required records can impede the staff’s ability to ensure firm compliance and the Commission’s capacity to hold violators accountable. Today's actions underscore the tangible benefits for firms that make significant efforts to comply and cooperate with investigations."
In response, S&P Global Ratings emphasized its commitment to regulatory compliance, the integrity of its ratings process, and delivering high-quality independent credit ratings.
