The European Securities and Markets Authority (ESMA) fined credit ratings firm Moody’s €3.7m for breaching rules including the failure to disclose conflicts of interests.
The fine was for five Moody’s entities based in France, Germany, Italy, Spain and Britain.
A fine of €2,735,000, was imposed on Moody’s UK, for infringements related to the issuing of new ratings in violation of the ban related to the 10% ownership threshold; the lack of appropriate disclosure regarding shareholder conflicts of interests which occurred in 206 instances for 65 rated entities; a lack of adequate policies and procedures; a lack of appropriate and effective organisational and administrative arrangements and a lack of sound administrative, accounting procedures and internal control mechanisms.
Moody’s France was fined €280,000, Moody’s Germany was fined €340,000 and Moody’s Spain and Italy were each fined €174,000.
The European Union’s markets watchdog said all the breaches resulted from negligence on the part of the company between 2013 and 2017.
ESMA found that Moody’s Germany and Moody’s UK negligently committed two infringements of the Credit Rating Agencies Regulation regarding their public announcement of certain ratings and their public disclosure of methodologies used to determine those ratings. Moody’s had inadequate internal policies and procedures to manage shareholder conflicts of interest, it said.
“ESMA believes it is crucial, to ensure independent good quality ratings and to protect investors, that ratings agencies carefully identify and subsequently eliminate or manage and disclose conflicts of interest to avoid interference by shareholders with the rating process,” the watchdog said in a statement.
In response, Moody’s said that the regulator had recognised the steps it has taken to prevent similar infringements in the future. “ESMA found that Moody’s Investors Service had no intent to infringe the EU regulation and there was no impact on the quality of any ratings,” a Moody’s spokesperson said.
ESMA said that the breaches were of a rule that prevents agencies from issuing ratings on companies in which they own 10% or more of its shares, or where they have a board position.
Moody’s has the right to appeal against the decision of the ESMA to the Board of Appeal of the European Supervisory Authorities.
The ESMA operates within the European System of Financial Supervision through active cooperation with the European Banking Authority, the European Insurance and Occupational Pensions Authority, the European Systemic Risk Board and with national authorities with competencies in securities markets.
This is hardly the first time a credit ratings agency has been fined by ESMA. The regulator fined Fitch €5.1m a few years ago for similar breaches.
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