SEC Fines Credit-Rating Agencies for Failure to Preserve Text Messages

The U.S. Securities and Exchange Commission (SEC) has imposed a $10 million penalty on two credit-rating agencies for their alleged failure to retain work-related text messages of employees. Morningstar subsidiary DBRS and the Kroll Bond Rating Agency have both admitted to the SEC's findings regarding their failure to preserve internal text messages concerning the creation and adjustment of credit ratings.

DBRS Violations

DBRS, starting from July 2019, had multiple violations involving employees at senior levels. The SEC revealed that DBRS failed to retain text messages related to the initiation and determination of credit ratings, as well as adjustments to their predictive model's results used in rating certain transactions. As a result, DBRS has agreed to pay $6 million to settle the charges against them.

Kroll Bond Rating Agency Violations

The Kroll Bond Rating Agency had similar violations starting from January 2020. The SEC found that the agency did not preserve text messages regarding the initiation, monitoring, modification, and withdrawal of credit ratings. The Kroll firm has agreed to pay $4 million to resolve the case.

Additional Allegations Against DBRS

In a separate action, the SEC has accused DBRS of making systematic adjustments to its credit enhancement levels in a manner inconsistent with its published procedures. While DBRS neither admitted nor denied these findings, they have agreed to resolve the matter by paying an additional $2 million penalty.

These fines reflect the SEC's commitment to enforcing adequate record-keeping practices within the credit-rating industry. By holding these agencies accountable for failing to preserve essential text messages, the SEC aims to ensure greater transparency and integrity within the industry.