S&P Fined $2.5 Million for Sales & Marketing Team Involved in Credit Rating Process, Pressured S&P Analytics Team to Use Wrong Preliminary Ratings Already Shared to Clients to Rate Jumbo Residential Mortgage Security
17th November 2022 | Hong Kong
S&P Global Ratings, one of the top 3 credit rating agencies alongside Moody’s and Fitch, had been fined $2.5 million by United SEC (Securities & Exchange Commission) for S&P sales & marketing team being involved in credit rating process to rate a jumbo residential mortgage-backed security transaction in July 2017, pressuring S&P analytics team to use wrong preliminary ratings already shared to clients for commercial reasons (sales consideration) and thus violating the conflict of interest rule. United States Chief of SEC’s Complex Financial Instruments Unit: “NRSROs are prohibited from issuing or maintaining a credit rating where an individual who participates in sales and marketing activity seeks to influence the determination of the rating. Credit rating agencies play a systemically important role in the structured products markets, and the federal securities laws require them to insulate their analytical functions from the influence of business considerations.” (Nationally Recognized Statistical Rating Organization, NRSRO). After discovering the circumstances surrounding the rating of the transaction, S&P self-reported the conduct at issue to the SEC, cooperated with the SEC’s investigation, and took remedial steps to enhance its conflicts of interest policies and procedures.
“ S&P Fined $2.5 Million for Sales & Marketing Team Involved in Credit Rating Process, Pressured S&P Analytics Team to Use Wrong Preliminary Ratings Already Shared to Clients to Rate Jumbo Residential Mortgage Security “
The Case – The SEC’s order finds that an issuer engaged S&P to rate a jumbo residential mortgage backed security transaction in July 2017. Over a five-day period in August 2017, S&P commercial employees—employees responsible for managing the relationship with the issuer—on several occasions attempted to pressure the S&P analytical employees—employees responsible for evaluating and assigning the rating—to rate the transaction consistent with preliminary feedback the analytical employees had given the customer that turned out to include a calculation error. Despite sending the communications through the compliance department as required by S&P’s policies and procedures at that time, some emails sent by the S&P commercial employees to the S&P analytical team contained statements reflecting sales and marketing considerations. The order finds that, as a result of the content, urgent nature, high volume, and compressed timing of the communications, the S&P commercial employees became participants in the rating process during a time when they were influenced by sales and marketing considerations.
United States SEC Charges S&P Global Ratings with Conflict of Interest Violations
14/11/22 – The Securities and Exchange Commission today charged S&P Global Ratings, a nationally recognized statistical rating organization (NRSRO) registered with the Commission, with violating conflict of interest rules designed to prevent sales and marketing considerations from influencing credit ratings.
The SEC’s order finds that an issuer engaged S&P to rate a jumbo residential mortgage backed security transaction in July 2017. Over a five-day period in August 2017, S&P commercial employees—employees responsible for managing the relationship with the issuer—on several occasions attempted to pressure the S&P analytical employees—employees responsible for evaluating and assigning the rating—to rate the transaction consistent with preliminary feedback the analytical employees had given the customer that turned out to include a calculation error. Despite sending the communications through the compliance department as required by S&P’s policies and procedures at that time, some emails sent by the S&P commercial employees to the S&P analytical team contained statements reflecting sales and marketing considerations. The order finds that, as a result of the content, urgent nature, high volume, and compressed timing of the communications, the S&P commercial employees became participants in the rating process during a time when they were influenced by sales and marketing considerations.
“NRSROs are prohibited from issuing or maintaining a credit rating where an individual who participates in sales and marketing activity seeks to influence the determination of the rating,” said Osman Nawaz, Chief of the SEC’s Complex Financial Instruments Unit. “Credit rating agencies play a systemically important role in the structured products markets, and the federal securities laws require them to insulate their analytical functions from the influence of business considerations.”
After discovering the circumstances surrounding the rating of the transaction, S&P self-reported the conduct at issue to the SEC, cooperated with the SEC’s investigation, and took remedial steps to enhance its conflicts of interest policies and procedures.
The order finds that, by issuing and maintaining these credit ratings, S&P violated certain rules promulgated under the Securities Exchange Act of 1934, which prohibit conflicts of interest at NRSROs, and also failed to establish, maintain, and enforce written policies and procedures designed to ensure compliance with those rules. Without admitting or denying the SEC’s findings, S&P agreed to settle this matter by paying a $2.5 million penalty and agreeing to the entry of a cease-and-desist order, a censure, and compliance with certain undertakings.
The SEC’s investigation was conducted by Jason Litow and Jennifer Brannan and was supervised by Jeffrey Weiss and Yuri B. Zelinsky. James Connor of the Enforcement Division’s Trial Unit and staff of the SEC’s Office of Credit Ratings assisted with the investigation.
Sign Up / Register
Caproasia Users
- Manage $20 million to $3 billion of assets
- Invest $3 million to $300 million
- Advise institutions, billionaires, UHNWs & HNWs
Caproasia Platforms | 11,000 Investors & Advisors
- Caproasia.com
- Caproasia Access
- Caproasia Events
- The Financial Centre | Find Services
- Membership
- Family Office Circle
- Professional Investor Circle
- Investor Relations Network
Monthly Roundtable & Networking
Family Office Programs
The 2024 Investment Day
- March 2024 - Hong Kong
- March 2024 - Singapore
- July 2024 - Hong Kong
- July 2024 - Singapore
- Sept 2024 - Hong Kong
- Sept 2024 - Singapore
- Oct 2024 - Hong Kong
- Nov 2024 - Singapore
- Visit: The Investment Day | Register: Click here
Caproasia Summits
- The Institutional Investor Summit
- The Investment / Alternatives Summit
- The Private Wealth Summit
- The Family Office Summit
- The CEO & Entrepreneur Summit
- The Capital Markets Summit
- The ESG / Sustainable Investment Summit
