Earlier this week we heard news that financial services company, Moody’s, was fined €1.24m by the EU’s markets watchdog for failing to publicly explain how it made a series of ratings decisions on EU institutions.
This has been met with a variety of reactions from the sector, with some agreeing with The European Securities and Markets Authority’s (Esma) stance that the lack of transparency over the ratings decisions will impact on investor trust and confidence. Of course, it is crucial that bond credit rating businesses enforce clarity but, for SLG, the well coined phrase, ‘don’t shoot the messenger just because you can,’ does springs to mind.
In this case, Moody’s has been fined for ‘negligent breaches’ of the Credit Rating Agencies Regulation related to nineteen ratings issued between June 2011 and December 2013. These were associated with nine supranational entities including the European Investment Bank, the European Stability Mechanism and the European Union. Although the credit rating agency has been condemned for failing to provide the methodology underpinning the ratings, EU financial institutions ratings are not a result of a consistent and simple-to-apply formula. If they were, the role of ratings agencies would be redundant.
This appears to be an overlooked but important observation omitted from some of the responses we have seen. With Moody’s German arm being fined €750,000 and its UK arm €490,000, this is certainly a bitter pill to swallow for the capital markets giant.
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