Security - Check Permissions

MFDF - Mutual Fund Directors Forum - SEC Charges Moody’s with Internal Controls Failures, Deficiencies in Ratings Processes

Member Login



Request an account

Sample Banner 2

SEC Charges Moody’s with Internal Controls Failures, Deficiencies in Ratings Processes

Moody’s Investors Service Inc. has agreed to pay a total of $16.25 million in penalties to settle SEC charges involving internal control failures and failing to clearly define and consistently apply credit rating symbols. This marks the first time the SEC has filed an enforcement action involving rating symbol deficiencies. According to the SEC’s order in the internal controls proceeding, Moody’s failed to establish and document an effective internal control structure as to models that Moody’s had outsourced from a corporate affiliate and used in rating residential mortgage-backed securities from 2010 through 2013. Moreover, Moody’s failed to maintain and enforce existing internal controls that should have been applied to the models. Moody’s corrected more than 650 RMBS ratings with a notional value exceeding $49 billion due partly to errors in the models. Also, in 54 instances, Moody’s failed to document its rationale for issuing final RMBS ratings that deviated materially from model-implied ratings. Moody’s separately agreed to pay $1.25 million and to review its policies, procedures, and internal controls regarding rating symbols. Moody’s did not admit or deny the SEC’s charges.