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The Securities and Exchange Commission had a question for the Big Three ratings agencies: WhatsApp with your recordkeeping? According to the SEC, starting in 2020, S&P, Moody’s, and Fitch employees were discussing credit rating activities on non-work messaging apps, like WhatsApp, without saving those electronic messages per federal securities law.
Records are the main way the SEC makes sure companies are following compliance with laws it enforces. To settle their charges, S&P and Moody’s each agreed to pay a $20 million fine, and Fitch an $8 million fine. The agreements also require each to admit they violated federal securities laws and to improve their “recordkeeping practices, policies and procedures, related supervisory practices, and employment actions” with an outside compliance consultant.
Three smaller ratings agencies were also charged. AM Best, HR Ratings de México, and Demotech agreed to pay fines of $1 million; $250,000; and $100,000, respectively.
“Pervasive.” The SEC “uncovered pervasive off-channel communications relating to Credit Rating Activities at various seniority levels” at each of the Big Three firms, it said in the orders settling charges with each company. Employees at all three used personal devices to text and send messages about “initiating, determining, maintaining, monitoring, changing, or withdrawing a credit rating” on apps like WhatsApp—even though those weren’t approved channels for discussing their work—and where those messages weren’t monitored or archived.
In its orders, the SEC condemned the Big Three for “widespread and longstanding failures” to follow recordkeeping requirements for ratings agencies. It said their failures to share off-channel communications probably hurt the SEC’s ability to investigate violations and enforce securities laws, as it had asked each for documents to help with its examinations and investigations over the time all three companies were using their incognito comms, which began “at least” in 2020.