European regulators have sanctioned credit rating agency Moody’s Investors Service for violations of conflict of interest regulations.
The European Securities and Markets Authority (ESMA) fined various units of the rating agency in the U.K., France, Germany, Spain and Italy a combined €3.7 million for breaching ESMA’s rules on independence and avoiding shareholder conflicts of interest.
Specifically, the regulator said that Moody’s violated rules regarding issuing ratings on entities where a rating agency shareholder exceeds the 10% ownership threshold and/or is a board member of the rated entity; failing to disclose conflicts of interest; and having inadequate internal policies to manage shareholder conflicts.
“ESMA believes it is crucial, to ensure independent good quality ratings and to protect investors, that [credit rating agencies] carefully identify, and subsequently eliminate or manage and disclose conflicts of interest to avoid interference by shareholders with the rating process,” the regulator said.
The U.K. division of Moody’s incurred the largest portion (€2.7 million) of the fine.