The Securities and Exchange Commission (SEC) filed charges against six nationally recognized statistical rating organizations, or NRSROs, for failure to maintain and preserve electronic communications.
The firms admitted the facts set forth by the SEC and acknowledged that their conduct violated recordkeeping provisions. 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).
They agreed to pay combined civil penalties of more than $49 million and cease and desist from future violations of these provisions. They also agreed to implement improvements to their compliance policies and procedures to address these violations.
The companies that were charged include:
- Moody’s Investors Service, which agreed to pay a $20 million civil penalty;
- S&P Global Ratings, which agreed to pay a $20 million civil penalty;
- Fitch Ratings, which agreed to pay an $8 million civil penalty;
- HR Ratings de México, which agreed to pay a $250,000 civil penalty;
- A.M. Best Rating Services, which agreed to pay a $1 million civil penalty; and
- Demotech, which agreed to pay a $100,000 civil penalty.
Also, each of the credit rating agencies, except A.M. Best and Demotech, is required to retain a compliance consultant. A.M. Best and Demotech were exempted from this requirement because they engaged in significant efforts to comply with the recordkeeping requirements relatively early and cooperated with the SEC’s investigations.
The four firms ordered to retain compliance consultants have agreed to review their policies and procedures relating to the retention of electronic communications found on their personnel’s personal devices. They also agreed to review their respective frameworks for addressing non-compliance by their personnel with those policies and procedures.
“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,” Sanjay Wadhwa, deputy director of the SEC’s Division of Enforcement, said. “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.”