Toronto-based credit rating agency DBRS Inc. will pay almost US$6 million to settle allegations from The U.S. Securities and Exchange Commission (SEC) that it misrepresented its oversight of ratings for certain complex securities for three years, the SEC announced on Monday.
According to the U.S. regulator, DBRS claimed that it would monitor its outstanding ratings of U.S. residential mortgage-backed securities (RMBS) and re-securitized real estate mortgage investment conduits on a monthly basis with both quantitative analysis, and subjecting each rating to review by a surveillance committee.
However, DBRS did not conduct the analysis on a monthly basis, nor did it present each rating to the surveillance committee each month, the SEC found, and when the committee did convene, it only reviewed a limited subset of the outstanding ratings.
As a result, the SEC found that DBRS violated various provisions of the federal securities laws. To settle the allegations, without admitting or denying those findings, DBRS agreed to pay disgorgement of US$2.74 million in rating surveillance fees it collected from 2009 to 2011, plus prejudgment interest of US$147,482; and, a penalty of US$2.9 million.
DBRS also agreed to be censured and retain an independent consultant to audit certain ratings methodologies and models, and to review certain aspects of DBRS’s internal controls, staffing, documentation of rating activities, document retention policies and practices, and compliance program. The settlement is final and does not require court approval.
DBRS is “pleased to have concluded this matter. The company takes its regulatory obligations very seriously and is committed to providing independent credit ratings opinions of the highest quality,” the rating agency said in a statement.