Credit rating agency S&P Global Ratings settled allegations of conflict of interest violations brought by the U.S. Securities and Exchange Commission.
The SEC charged the firm with breaching conflict of interest rules in connection with a residential mortgage-backed security (RMBS) transaction in July 2017.
According to the regulator, employees responsible for managing the relationship with the RMBS issuer attempted to pressure credit analysts at the firm to provide the transaction with a credit rating that matched their initial expectations, which included an 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 SEC alleged.
The issue was self-reported by S&P after it discovered the violation.
The firm settled the charges without admitting or denying the SEC’s allegations. In settling the case, it agreed to pay a US$2.5-million penalty, to be censured, and it agreed to comply with a cease-and-desist order.
The SEC also noted that the firm cooperated with its investigation, and took steps to enhance its conflicts of interest policies and procedures.
“[Rating agencies] 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, in a release.
“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,” Nawaz added.