The European Union’s market watchdog has fined one of the world’s main credit rating agency’s more than €1 million after accusing it of failing to be open in the way it scored the debts of major institutions including the EU itself.
The European Securities and Markets Authority (Esma) said that the German and UK operations of Moody’s had committed “negligent breaches” of its rules over several years when they issued ratings for the bonds of several EU agencies, including the European Stability Mechanism, the European Investment Bank and the European Investment Fund.
The regulator said that it had found failings in the way 19 ratings were published between June 2011 and December 2013. Specifically, Esma said that Moody’s had not provided enough detail on how it had reached its conclusions and what methodology it had used.
The EU and its various agencies are big issuers of debt to support their various activities. “The disclosure of methodologies forms an integral part of the rating process allowing investors and market participants to check and verify that issued ratings are sound and reliable,” Esma said in a statement.
Moody’s Deutschland, the agency’s German unit, was hit with the larger part of the fine at €750,000, while Moody’s Investors Service, its UK division, must pay a €490,000 penalty. Both have the right to appeal against the fines.
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“None of the findings related to the quality of our ratings or the supranational methodology itself,” a spokesman for the rating agency said. “Esma also recognised that Moody’s took steps in 2013 to ensure that similar infringements did not occur in the future.”
Moody’s ratings form a key part of the global debt markets, providing investors with a way to assess the various risks of buying bonds issued by various bodies from the largest national governments and supranational organisations to corporations.