ESMA fines Moody’s €1.24 million for credit ratings breaches
The European Securities and Markets Authority (ESMA) has fined Moody’s Deutschland GmbH (Moody’s Germany) €750,000 and Moody’s Investors Service Limited (Moody’s UK) €490,000, and issued a public notice, for two negligent breaches of the Credit Rating Agencies Regulation (CRAR).
ESMA found that Moody’s Germany and Moody’s UK negligently committed two infringements of the CRAR regarding their public announcement of certain ratings and their public disclosure of methodologies used to determine those ratings. These failures concern nineteen ratings issued between June 2011 and December 2013 for nine supranational entities including the European Investment Bank, the European Investment Fund, the European Stability Mechanism, the European Financial Stability Facility and the European Union.
Moody’s breaches of the CRA Regulation
- Ratings Presentation Infringement
The public announcement of the nineteen ratings issued by Moody’s Germany and Moody’s UK between June 2011 and December 2013 included no other material sources of public information than press releases. These failed to indicate the principal methodology used for the ratings decisions and failed to refer to any comprehensive descriptions of the methodology used.
- Methodology Disclosure Infringement
The methodology used in each of the nineteen ratings issued by Moody’s Germany and Moody’s UK between June 2011 and December 2013 was not the subject of any separate public disclosure either before or after the public rating announcements. This Infringement continued for more than six months.
The quality of credit rating methodologies, together with their full and timely public disclosure is a key objective of the CRAR. 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. 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.
Right of appeal
Moody’s Germany and Moody’s UK may appeal against this decision to the Board of Appeal of the European Supervisory Authorities. Such an appeal does not have suspensive effect, although it is possible for the Board of Appeal to suspend the application of the decision in accordance with Article 60(3) of the CRA Regulation.