News broke late yesterday that the US Securities and Exchange Commission was suing Morningstar for its ratings of commercial mortgage-backed securities that were issued from 2015 to 2016.   Reuters reports that ‘ Morningstar’s credit ratings business allegedly violated disclosure and internal controls requirements in 30 commercial mortgage-backed securities transactions from 2015 to 2016 when the agency allowed analysts to make undisclosed adjustments to key stresses in its modelling, the SEC said ’. Morningstar, who now issue ratings via their subsidiary DBRS Morningstar after their acquisition of DBRS in 2019, responded that they had complied with all regulatory requirements. However, the SEC alleges that Morningstar allowed its analysts to ‘frequently’ alter their ratings, with those changes being undisclosed and out of alignment with their published methodologies. The result of this was that issuers were subsequently able to lower their interest payments to investors without me

The Board of the International Organisation of Securities Commissions (IOSCO) recently published a report regarding the effect on the credit ratings of the Big Three credit rating agencies (S&P, Moody’s, and Fitch) of the use of ‘Government Support Measures’ (GSM) relating to the Covid-19 pandemic. Interestingly, IOSCO combed public information and also liaised with the credit rating agencies themselves to study the methodological changes, and also the real effect changes to the ratings produced since the onset of the pandemic. The result is not really surprising, but there is a clear warning from the credit rating agencies, via IOSCO and this report, that the withdrawal of GSM across the board needs to be very gradual indeed.   The report, available here , contains the review of ratings from the Big Three in a variety of categories, ranging from structured finance ratings to sovereign ratings. IOSCO start by stating that ‘the analysis includes a review of any changes made to t

In today’s very brief post, information on Moody’s’ latest acquisition is introduced although, at the time of writing, not much information is available regarding the specifics of the deal – it is unlikely to be a costly acquisition, but it further boosts the agency’s offerings on small business-related information.   Moody’s, via its Moody’s Analytics arm, partnered with Cortera in 2018. Cortera, a company which analyses small business mainly (under 500 employees), has built one the world’s largest databases on such entities . In 2018, Moody’s Analytics partnered with the firm to accentuate their ‘small business lending solution ’. At the time, the founder of Cortera – Jim Swift – noted that a ‘ lender’s ability to assess the credit risk of small private companies can be challenging with traditional sources… incorporating our trade credit data will enhance the Moody’s Analytics solution by offering its clients a wealth of insight into these businesses ’. The service, which reminds

As we discussed in a previous post , the calls for the regulation of the ESG ratings sector, particularly in the EU, are growing louder by the day. ESMA have recently responded to the European Commission regarding this point – see here – via its response to public consultation regarding the Renewed Sustainable Finance Strategy, but it has now attempted to provide further detail. In a letter addressed to the EC at the end of January, ESMA provide more detail on its regulatory vision for the sector, and the obstacles that exist.   ESMA starts by noting that there will be difficulties in moving towards a more formal regulatory framework surrounding the ESG Rating Agencies. That the ratings and the ‘agencies’ themselves are complex in nature does not help. Also, as the industry attempts to innovate to meet the ever-growing need for its services, this has also been identified by ESMA as being problematic. They even note that ‘estimating the number of firms in the market for ESG ratings