(HedgeCo.Net) The Securities and Exchange Commission has announced that Moody\u2019s Investors Service Inc., one of the nation\u2019s largest credit ratings agencies, has agreed to pay a total of $16.25 million in penalties to settle charges involving internal control failures and failing to clearly define and consistently apply credit rating symbols. This marks the first time the SEC has filed an enforcement action involving rating symbol deficiencies.<\/p>\n
Moody\u2019s agreed to pay $15 million to settle charges of internal controls failures involving models it used in rating U.S. residential mortgage-backed securities (RMBS) and will retain an independent consultant to assess and improve its internal controls. Moody\u2019s separately agreed to pay $1.25 million and to review its policies, procedures, and internal controls regarding rating symbols. Moody\u2019s did not admit or deny the SEC\u2019s charges.<\/p>\n
According to the SEC\u2019s order in the internal controls proceeding, Moody\u2019s failed to establish and document an effective internal control structure as to models that Moody\u2019s had outsourced from a corporate affiliate and used in rating RMBS from 2010 through 2013. Moreover, Moody\u2019s failed to maintain and enforce existing internal controls that should have been applied to the models. Ultimately, Moody\u2019s corrected more than 650 RMBS ratings with a notional value exceeding $49 billion, due, in part, to errors in the models. Also, in 54 instances, Moody\u2019s failed to document its rationale for issuing final RMBS ratings that deviated materially from model-implied ratings.<\/p>\n
\u201cRating agencies play a critical role in our capital markets and need to have effective controls over their rating processes,\u201d said Antonia Chion, Associate Director of the SEC\u2019s Division of Enforcement. \u201cAs our order notes, the SEC put Moody\u2019s on notice about its internal controls obligations yet it did not develop an effective process to ensure the accuracy of the models it relied upon when rating residential mortgage-backed securities.\u201d<\/p>\n
In the SEC\u2019s order relating to rating symbols, for 26 ratings of securities known as \u201ccombo notes\u201d with a total notional value of about $2 billion, Moody\u2019s assigned ratings to combo notes in a manner that was inconsistent with other types of securities that used the same rating symbols. <\/p>\n
\u201cInvestors expect and the law requires that symbols used by rating agencies be clearly defined and consistently applied,\u201d said Reid Muoio, Deputy Chief of the Enforcement Division\u2019s Complex Financial Instruments Unit. \u201cToday\u2019s proceeding is the SEC\u2019s first enforcing the Universal Ratings Symbol requirement and we will continue to pursue failures that render rating symbols unclear or inconsistent.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
(HedgeCo.Net) The Securities and Exchange Commission has announced that Moody\u2019s Investors Service Inc., one of the nation\u2019s largest credit ratings agencies, has agreed to pay a total of $16.25 million in penalties to settle charges involving internal control failures and […]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[16043,16033,16,3,16048,16047],"tags":[],"class_list":["post-65479","post","type-post","status-publish","format-standard","hentry","category-hedge-fund-technology","category-hedge-fund-whitepaper","category-hedgeco-networks-press-releases","category-hedgeco-news","category-hedgecovest-news","category-insider-trading-2"],"_links":{"self":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/65479","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/comments?post=65479"}],"version-history":[{"count":1,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/65479\/revisions"}],"predecessor-version":[{"id":65480,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/65479\/revisions\/65480"}],"wp:attachment":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/media?parent=65479"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/categories?post=65479"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/tags?post=65479"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}