06 SEP 2024 / ALL REGULATORY UPDATES

SEC Penalizes Six Credit Rating Firms for Recordkeeping Lapses

Did you catch the latest SEC shake-up? The Securities and Exchange Commission just took aim at six major credit rating agencies for some serious recordkeeping slip-ups. Yep, even the big dogs like Moody’s Investors Service, S&P Global Ratings, and Fitch Ratings are feeling the heat, shelling out over $49 million in penalties for failing to keep their electronic communications in check.

Here’s the damage report: Moody’s and S&P Global are each hit with a whopping $20 million penalty—ouch! Fitch Ratings isn’t far behind, paying $8 million, while HR Ratings de México has been fined $250,000. A.M. Best Rating Services will pay $1 million, and Demotech, Inc. rounds it off with a $100,000 penalty. Most of these firms are now required to hire compliance consultants to overhaul their recordkeeping procedures, except for A.M. Best and Demotech, who got off slightly easier for their early efforts to comply.

So, what’s the big deal? According to SEC Deputy Director Sanjay Wadhwa, failing to maintain proper records isn’t just a minor oversight—it’s a serious breach that can disrupt the SEC’s ability to keep firms accountable, often leaving investors in the lurch. The message from the SEC is crystal clear: there are benefits to cooperating, but if you fall short, you’re going to feel it in your wallet.

These penalties don’t just come with a fine print; the agencies are also ordered to cease and desist from future violations and will be taking a long, hard look at their internal policies. So, if you’re thinking of cutting corners, take a page from this book—compliance isn’t just about ticking boxes; it’s about keeping your business in the clear and avoiding some very expensive lessons. Learn about more recent updates from the SEC here.