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S&P Global Ratings Fined €1.1 Million by EU Watchdog for Credit Rating Breaches

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BNN Correspondents
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S&P Global Ratings has been fined 1.1 million euros ($1.19 million) by the European Securities and Markets Authority (ESMA) for publishing credit scores before relevant securities had been issued.

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The regulator also issued a public notice for breaches of credit rating agencies regulations. ESMA said the issue occurred six times due to the failure of S&P's "internal control mechanisms."

Additionally, the regulator said that S&P breached rules by not disclosing on a "non-selective basis and in a timely manner" why it had withdrawn six ratings between 2019 and 2021, as well as for failing to submit up-to-date rating information to ESMA. "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," said ESMA chair Verena Ross.

S&P has the right to appeal against the fine, but it has not yet done so. The credit rating agency, which is owned by S&P Global, issued a statement saying it was pleased to have concluded the matter.

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This is not the first time S&P has faced scrutiny from ESMA. The regulator gave the company and its French subsidiary a public warning in 2014 after it mistakenly announced a downgrade of France’s sovereign credit rating in 2011 during the euro zone debt crisis.

The penalties imposed on S&P come amid growing scrutiny of the credit rating industry by regulators. Last year, Moody's reached a $1.1bn settlement with the US government and 21 states over allegations that it misled investors in the run-up to the financial crisis. In 2019, Fitch Ratings and DBRS Morningstar were both fined by ESMA for breaching regulations, while Moody's was hit with a 1.2 million euro fine by French regulators in 2018.

The credit rating industry has long been a subject of controversy, with critics arguing that the agencies have too much power and can exert undue influence over the markets. Others argue that credit ratings are a valuable tool for investors and issuers alike. Regulators have sought to strike a balance between these two positions, introducing tougher rules for credit rating agencies while also recognising their important role in the financial system.

The penalties imposed on S&P by ESMA are a reminder that credit rating agencies need to be vigilant in their practices and adhere to strict regulatory requirements. With the industry facing increasing scrutiny, it is likely that we will see more fines and penalties imposed on credit rating agencies in the coming years.

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