SEC Expands Texting Crackdown to Big Ratings Agencies
What You Need to Know
Six credit ratings firms agreed to pay combined civil penalties of more than $49 million.
The firms failed to retain and monitor messages through employees’ use of texting and platforms like WhatsApp.
The SEC has levied more than $3 billion in fines to date in its off-channel communications sweep.
The Securities and Exchange Commission’s crackdown on texting and the use of unauthorized messaging apps continued Tuesday with charges against six nationally recognized statistical rating organizations, or NRSROs, for significant failures by the firms and their personnel to maintain and preserve electronic communications.
The violations included employees, including those at senior levels, communicating for purposes relating to credit rating activities via text messages and other messaging platforms, such as WhatsApp, that were not monitored.
The firms admitted the facts set forth in their respective SEC orders, acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, and agreed to pay combined civil penalties of more than $49 million as follows:
The firms have begun implementing improvements to their compliance policies and procedures to address these violations, the SEC said. Each of the credit rating agencies, with the exception of A.M. Best and Demotech, is also required to retain a compliance consultant.
A.M. Best and Demotech “engaged in significant efforts to comply with the recordkeeping requirements relatively early as registered credit rating agencies and otherwise cooperated with the SEC’s investigations,” and, as a result, will not be required to retain a compliance consultant, according to the SEC.
“We have seen repeatedly that failures to maintain and preserve required records can hinder the staff’s ability to ensure that firms are complying with their obligations and the Commission’s ability to hold accountable those that fall short of those obligations, often at the expense of investors,” said Sanjay Wadhwa, deputy director of the SEC’s Division of Enforcement in a statement.
