Today’s short post provides two updates from the credit rating industry, with each providing particularly contrasting fortunes for the agencies involved. Morningstar Settles with the SEC The first story today involves Morningstar, an agency that has been trying to really carve a position for itself in the oligopolistic rating market . Morningstar had reason to be forward-looking this year with its purchase of Sustainalytics being completed in April. The development of the ESG-mainstreaming project means this purchase puts Morningstar in a string position. However, yesterday Morningstar settled with the SEC with regards to charges that it had violated regulations relating to the elimination of internal conflicts of interest. Specifically, the rule that credit rating analysts should not be involved with the sales and marketing efforts of the agency had been violated . The cost of this settlement has been reported to be $3.5 million, but the details provide flagrant breaches o...

Life as the fourth-largest Rating Agency has not gone as planned for Morningstar. Last year the firm acquired DBRS – as we discussed here – and were hoping to improve investors’ trust in the rating industry by bringing a new and honest approach to the field. However, as Cezary Podkul of the Wall Street Journal has recently reported, it appears that they are about to be fined for falling foul of one of the oldest conflicts of interests that plagues the rating industry. The article introduces the news that Morningstar will, in coming days, be fined ‘ several million dollars’ for ‘violating riles in its bond-rating business that prohibit analysts who hand out credit ratings from being involved in sales and marketing for their companies ’. There are a number of regulations that came in after the Financial Crisis – and, in truth, agencies pledged on a self-regulatory basis to prevent the same thing from happening even before the Crisis – to prevent this behaviour. The calls to erec...

It has been reported recently that Morningstar, a credit rating agency, is attempting to move into the rating market for digital assets. Whilst the article breaking this news contains a number of issues, it does raise an interesting point regarding a. the rating of digital assets, and b. whether the credit rating industry is ready to move into that particular marketplace. In this post we will assess the lead article, and discuss some other elements within this particular field. The article in Brave New Bitcoin starts off on a worrying footing right out of the gate, announcing that ‘Morningstar Credit Ratings launched in 2016… despite only being in the market for three years the financial services company managed to generate over $1 billion revenue in 2018’. We can dismiss this error as we know that, in 1984 Joe Mansueto founded the agency in Chicago . The article has mistaken Morningstar’s receiving of permission to rate corporate bonds in 2016 as the beginning of it as an agen...

With the Credit Rating Agencies being the exclusive research concern of this author, it is unsurprising that they, as an industry, have featured heavily here in Financial Regulation Matters . As such, we tend to keep abreast of developments within this industry as well as other key financial areas, and in this post we will continue this approach by examining the latest ‘move’ in this particular marketplace. We recently looked at developments within Scope Ratings , the European entity seeking to provide a pan-European alternative, whilst we also looked at recent mergers that potentially concern the so-called ‘Big Three’ (in relation to sale of Acuris ). To complement these analyses we looked closer at the concept of an ‘ oligopoly ’ and its application onto the credit rating industry, which allows us to understand the dynamics between the Big Three and their relationship with the rest of the marketplace. We will soon be analysing a new entrant into the marketplace in the coming weeks...