The European Securities and Markets Authority (ESMA), has imposed a €1.1 million fine on the European branch of US-based credit rating agency S&P.
The agency was penalized for violating the Credit Rating Agencies Regulation (CRA Regulation) by publishing credit ratings before the related securities were issued and announced to the market by the rated firm.
Verena Ross, ESMA’s Chair, commented:
Today’s action against S&P emphasises the importance ESMA places on CRAs complying with their obligations of timely disclosure of information regarding ratings to the market.
Publishing a credit rating before the issuance of the rated securities may result in harm to the issuer, to investors and more generally to the orderly functioning of the financial markets.
ESMA found S&P Global Ratings Europe Limited guilty of three contraventions, which included internal control and transparency breaches. The financial market supervisor fined S&P €825,000, €210,000, and €75,000 for each of the violations, respectively. The credit agency can challenge the decision before the Board of Appeal of the European Supervisory Authorities.
S&P Global Ratings is part of S&P Global, a publicly traded company based in New York that specializes in financial information and analytics. It is one of the three largest credit rating agencies in the world, along with Moody’s Investors and Fitch Ratings. ESMA found flaws in S&P’s internal controls procedures and implementation, which led to the untimely release of its credit ratings. ESMA discovered that S&P had published credit ratings on six issuers between June 5, 2019, and September 8, 2021, before the issuers issued their securities and announced them to the market.
ESMA also found that S&P had breached its transparency obligations on six occasions between 2019 and 2021 by removing credit ratings from its public portals without prior notice. Additionally, ESMA noted that S&P had failed to ensure that the information shared by one of its rated entities was correct and up-to-date, which was later shared with ESMA for publication in the European Rating Platform.
ESMA determined that S&P was responsible for all of the violations due to negligence. When determining the amount of the fine, ESMA took into account the aggravating and mitigating factors outlined in the CRA Regulation.
