On July 21, 2016, ESMA issued Fitch Ratings Limited with fines totaling €1.38 million for numerous allegedly negligent breaches of the requirements relating to sovereign ratings set out in the EU Credit Rating Agencies Regulation.
On January 26, 2012, Fitch informed Slovenia of its intention to downgrade its sovereign rating, whilst providing no information establishing the grounds for its intention. Fitch subsequently sent such information on the following day, but, three hours after doing so, it made a public announcement of the sovereign rating downgrade. ESMA found Fitch to be in breach of the requirement under the CRA Regulation that a CRA must inform the rated entity at least 12 hours before publication of the credit rating and of the principal grounds on which the order is based to give the entity an opportunity to highlight any factual errors to the CRA.
Between June 1, 2011 and February 14, 2012, ESMA found that Fitch’s internal controls for the purposes of complying with the 12 hours’ notice requirement were in breach of the CRA Regulation. For example, Fitch’s policy framework provided unclear guidance to staff on how to comply with the 12 hours’ notice requirement and those responsible for supervision of the requirement did not exercise their control functions sufficiently.
Between December 1, 2010 and June 7, 2010, certain senior analysts at Fitch transmitted information about upcoming ratings actions on sovereign ratings to certain senior persons at Fitch’s parent entity before it was made public. ESMA found that Fitch was in breach of the prohibition under the CRA Regulation on sharing or disclosing information about new or potentially new credit ratings with any person not involved in the production of the ratings. In total, nine email exchanges took place during the relevant period, with only four email exchanges taking place after June 1, 2011, the date of entry into force of the infringement provisions in the CRA Regulation. ESMA’s fines consisted of €60,000 for breach of the 12-hour requirement, €825,000 for lack of internal controls and €495,000 for unauthorized disclosures.
ESMA’s decision is available at: https://www.esma.europa.eu/sites/default/files/library/2016-1131_decision_on_fitch.pdf and the public notice is available at: https://www.esma.europa.eu/sites/default/files/library/2016-1159_public_notice.pdf.