| Moody’s Investors Service Inc. has agreed to settle charges by a federal regulator that its rating system for residential mortgage-backed securities was deficient.
The New York-based ratings agency previously outsourced models from a corporate affiliate that it used in the rating of RMBS from 2010 through 2013. But, according to the Securities and Exchange Commission, Moody’s failed to establish and document an effective internal control structure as to the models. It also allegedly failed to maintain and enforce existing internal controls that should have been applied to the models. Errors in the models led Moody’s to correct more than 650 RMBS ratings with a notional value in excess of $49 billion, the SEC said. The SEC also said Moody’s failed to document its rationale for issuing final RMBS ratings that deviated materially from model-implied ratings in 54 instances. Additionally, in 26 ratings of combo notes with a notional value of around $2 billion, Moody’s is accused of assigning ratings in a manner inconsistent with other types of securities that used the same rating symbols. Without admitting or denying any of the alleged actions, Moody’s has agreed to settle the SEC’s charges for $16.25 million in penalties. “This marks the first time the SEC has filed an enforcement action involving rating symbol deficiencies,” the SEC stated. |
