The European Securities and Markets Authority (ESMA) has fined S&P Global Ratings Europe Limited (S&P) a total of EUR 1,110,000, and issued a public notice, for breaches of the Credit Rating Agencies Regulation (CRA Regulation).
ESMA found that S&P published credit ratings before the concerned securities were issued by the rated entities and announced to the market. This was due to internal control failures and led to breaches by S&P of its transparency obligations.
S&P Global Ratings Europe Limited (‘S&P’) is a registered credit rating agency (CRA) incorporated in Ireland and one of the largest CRA groups in terms of revenues and size.
The CRA Regulation (Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies, the ‘Regulation’) lays down obligations for CRAs in the conduct of their activities. In conjunction with its role as supervisor of CRAs under Article 21 of the Regulation, the European Securities and Markets Authority (ESMA) has functions and powers to take enforcement actions in relation to infringements of the Regulation by CRAs.
According to the Regulation, a CRA shall have sound administrative and accounting procedures, internal control mechanisms, effective procedures for risk assessment, and effective control and safeguard arrangements for information processing systems.
According to the Regulation, a CRA shall disclose any credit rating or rating outlook, as well as any decision to discontinue a credit rating, on a non-selective basis and in a timely manner. In the event of a decision to discontinue a credit rating, the information disclosed shall include full reasons for the decision.
A CRA must submit rating information to ESMA, including the credit rating and rating outlook of the rated instrument, information on the type of credit rating, the type of rating action, and the date and hour of publication. Further, the Commission Delegated Regulation (EU) 2015/2 supplementing the Regulation with regard to regulatory technical standards for the presentation of the information that credit rating agencies make available to ESMA (‘Commission Delegated Regulation (EU) 2015/2’) clarifies that a CRA shall ensure the accuracy, completeness and availability of the data reported to ESMA and that where a CRA identifies factual errors in data that have been reported, it shall correct the relevant data without undue delay.
In January 2022, following preliminary investigations, ESMA’s Supervisors found that with respect to S&P, there were serious indications of the possible existence of facts liable to constitute one or more of the infringements listed in Annex III to the Regulation.
The matter was then referred to an Independent Investigating Officer (IIO) who, after having conducted an independent investigation, submitted his findings to the Board of Supervisors.
Having considered the evidence, the Board found that S&P negligently committed several infringements of the Regulation.
- First infringement
By failing to have internal control mechanisms adequate to ensure compliance with its obligations regarding the timely disclosure of credit ratings, S&P negligently committed the infringement set out at Point 12 of Section I of Annex III of the Regulation.
- Second infringement
By failing to disclose on a non-selective basis and in a timely manner six decisions to discontinue a credit rating, S&P committed negligently the infringement set out at Point 5 of Section III of Annex III of the Regulation.
- Third infringement
By not submitting up-to-date rating information to ESMA, S&P committed negligently the infringement set out at Point 4a of Section II of Annex III of the Regulation.
The overall fine to be imposed on S&P for three infringements committed with negligence amounts to EUR 1,110,000.
