Editor’s Note: The article has been updated with comments from S&P Global, AM Best, and HR Ratings.
In a recent development, the Securities and Exchange Commission (SEC) has imposed a hefty penalty on six leading rating agencies, including Moody's Ratings by Moody’s Corp. MCO, S&P Global Ratings by S&P Global SPGI, and Fitch Ratings, Inc., for significant lapses in maintaining and preserving electronic communications. The agencies have consented to pay combined civil penalties surpassing $49 million.
What Happened: According to an SEC press release on Tuesday, the six rating agencies conceded to the facts detailed in their respective SEC orders and recognized that their conduct breached federal securities laws’ record-keeping provisions. The firms have initiated enhancements to their compliance policies and procedures to rectify these violations.
Among the firms, Moody's and S&P Global Ratings each consented to pay a $20 million civil penalty, while Fitch Ratings agreed to a $8 million civil penalty. The remaining three firms, HR Ratings de México, S.A. de C.V., A.M. Best Rating Services, Inc., and Demotech, Inc., consented to pay penalties of $250,000, $1 million, and $100,000 respectively.
"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.
The six firms were charged with violating Section 17(a)(1) of the Securities Exchange Act of 1934 and Rule 17g-2(b)(7) thereunder. In addition to financial penalties, each credit rating agency was ordered to cease and desist from future violations of these provisions and was censured.
Responding to Benzinga’s queries, S&P Global, AM Best and HR Ratings acknowledged the SEC’s penalty and assured commitment to compliance with their respective regulatory obligations.
Why It Matters: This enforcement action is part of a broader SEC crackdown on regulatory compliance. Earlier, the SEC charged Galois Capital for violations of the Investment Advisers Act's Custody Rule and misleading investors.
The SEC has previously drawn criticism from billionaire investors like Mark Cuban who publicly criticized the agency for its focus on Wall Street at the expense of smaller investors.
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This story was generated using Benzinga Neuro and edited by Pooja Rajkumari
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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