EU financial regulator lumps €1.24m fine on Moody's for breaching credit ratings rules

Lucy White
Moody's does not dispute the findings, and says it is "please the matter is closed" (Source: Getty)

Moody's has been fined €1.24m by the European Securities and Markets Authority (ESMA), for failing to publicly explain its methodology behind a series of ratings decisions.

ESMA found that the credit rating business had committed two negligent infringements of the Credit Rating Agencies Regulation (CRAR), and fined Moody's UK €490,000 and Moody's Germany €750,000.

The failures concerned nineteen ratings between 2011 and 2013 for nine supranational entities, including the European Union, the European Investment Bank, the European Investment Fund, the European Stability Mechanism and the European Financial Stability Facility.

"The disclosure of methodologies forms an integral part of the rating process allowing investors and market participants to check and verify that issued ratings are sound and reliable," said ESMA.

"Given the role of CRAs and ratings in financial markets, and their impact on investor trust and confidence, it is essential that high standards of transparency, are maintained and enforced."

A spokesperson for Moody's said it "acknowledges ESMA’s findings and is pleased that this matter is closed", implying it will not appeal the decision.

"None of the findings related to the quality of our ratings or the supranational methodology itself," the spokesperson said, adding that Moody's "took steps in 2013 to ensure that similar infringements did not occur in the future".

ESMA has only made enforcements against three credit rating agencies in its history, since it was founded following the financial crisis amid calls for decentralised financial supervision.

The latest was Fitch Ratings, which was fined €1.38m last year for leaking sovereign rating actions before they were made public and for failing to give a rated entity the minimum time to respond to a change in rating.

Canadian agency DBRS was fined €30,000 for inadequate record-keeping, while Standard & Poor's was censured for erroneously writing that France had been “downgraded” in an email header.

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