SEC Imposes $49 Million in Penalties on Six Credit Rating Agencies for Recordkeeping Violations

The Securities and Exchange Commission (SEC) announced today that it has charged six major credit rating agencies with significant failures in maintaining and preserving electronic communications. The firms have admitted to wrongdoing and agreed to pay a combined total of over $49 million in penalties to settle the charges.

The six nationally recognized statistical rating organizations (NRSROs) involved in the settlement are:

1. Moody's Investors Service, Inc. - $20 million penalty
2. S&P Global Ratings - $20 million penalty
3. Fitch Ratings, Inc. - $8 million penalty
4. HR Ratings de México, S.A. de C.V. - $250,000 penalty
5. A.M. Best Rating Services, Inc. - $1 million penalty
6. Demotech, Inc. - $100,000 penalty

The SEC's investigation revealed that these firms violated recordkeeping provisions of federal securities laws, specifically Section 17(a)(1) of the Securities Exchange Act of 1934 and Rule 17g-2(b)(7).

Sanjay Wadhwa, Deputy Director of the SEC's Division of Enforcement, emphasized the importance of proper record-keeping, stating, "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."

As part of the settlement, four of the six firms - Moody's, S&P Global, Fitch, and HR Ratings - are required to retain compliance consultants. These consultants will conduct comprehensive reviews of the firms' policies and procedures related to the retention of electronic communications on personal devices and their frameworks for addressing non-compliance.

A.M. Best and Demotech, while still facing penalties, are not required to retain compliance consultants due to their early efforts to comply with record-keeping requirements and cooperation with the SEC's investigations. All six firms have been ordered to cease and desist from future violations and have been censured. They have also begun implementing improvements to their compliance policies and procedures to address these violations.

This action by the SEC underscores the regulatory body's commitment to enforcing proper record-keeping practices among financial institutions and highlights the potential consequences for firms that fail to meet these obligations.

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