The Securities and Exchange Commission has charged six credit rating agencies, including Moody’s Corp., S&P Global Inc. and Fitch Ratings Inc., with significant recordkeeping violations.
The SEC announced last week that the charges involved failures by the firms and their personnel to maintain and preserve electronic communications. According to the commission, the firms admitted the facts set forth in their respective SEC orders; acknowledged that their conduct violated recordkeeping provisions of the federal securities laws; agreed to pay combined civil penalties of more than $49 million, and have started implementing improvements to their compliance policies and procedures to address these violations.
The firms and penalties were as follows:
These are the latest enforcement actions in the SEC’s ongoing crackdown against off-channel communications in the financial industry. The agency has filed administrative complaints against dozens of firms alleging failures in compliance with record-keeping requirements involving electronic communications.
“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,” said Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement. “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.”
Each of the six firms was charged with violating Section 17(a)(1) of the Securities Exchange Act of 1934 and Rule 17g-2(b)(7) thereunder. Along with the financial penalties, each credit rating agency was ordered to cease and desist from future violations of these provisions and was censured.
Each of the agencies, except A.M. Best and Demotech, is also required to retain a compliance consultant to review their policies and procedures regarding retaining electronic communications on their personnel’s personal devices. A.M. Best and Demotech are not required to retain a consultant because they engaged in significant efforts to comply with the recordkeeping requirements relatively early otherwise cooperated with the SEC’s investigations.
Financial firms are required to monitor and save communications involving their business in order to prevent potential misconduct.
In a statement, Moody’s said it is “fully committed” to upholding its record-keeping obligations and is pleased to put the issue behind it.
“S&P Global Ratings remains committed to compliance with its regulatory obligations,” the company said in a statement. It noted that the regulator acknowledged the firm’s remedial actions and cooperation.
“HR Ratings has significantly strengthened its electronic recordkeeping policies and procedures,” the company said in a statement. “The settlement with the SEC underscores our firm commitment to upholding regulatory standards in every jurisdiction where we operate.”
A.M. Best said it was pleased that the SEC recognized the firm’s “historical efforts to comply with recordkeeping requirements,” that the agency decided a compliance consultant isn’t necessary and that the matter is resolved. Demotech and Fitch did not immediately respond to requests for comment.
The attorneys at Lewitas Hyman include former senior attorneys at the SEC whose legal experience and industry knowledge make them uniquely qualified to provide counsel on securities regulatory, compliance and enforcement matters. If your firm is facing an investigation from a regulatory agency, please contact Lewitas Hyman at (888) 655-6002 or through our online contact form.
