The SEC has charged six nationally recognised statistical rating organisations (NRSROs) with failures to maintain and preserve electronic communications. In total, more than US$49 million will be paid in penalties.
Moody’s Investor Service, S&P Ratings, Fitch Ratings, HR Ratings de México, AM Best Rating Services and Demotech have all been charged with violations of Section 17(a)(1) of the Securities Exchange Act of 1934 and Rule 17g-2(b)(7) thereunder. Individual civil penalties range from US$100,000 (Demotech) to US$20 million (Moody’s and S&P).
Sanjay Wadhwa, deputy director of the division of enforcement at the SEC, commented: “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.”
The six firms have all admitted to the charges. Acknowledging their violations of recordkeeping provisions of the federal securities laws, they have begun to implement improvements to their compliance policies, the SEC said.
Four of the six agencies are now required to retain a compliance consultant to execute comprehensive policy and procedure reviews around electronic communication retention. AM Best and Demotech are exempt due to their “significant efforts to comply with the recordkeeping requirements relatively early” and overall cooperation, the SEC stated.
Wadhwa noted: “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.”
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