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ESMA fines DBRS Ratings for internal control failure

The European Securities and Markets Authority (ESMA) has fined DBRS Ratings €30,000 for failing to comply with the Credit Rating Agencies (CRA) Regulation on record keeping.30 Jun 2015

This is the first fine that ESMA has imposed on an agency under the regulation, it said.

ESMA also published a public notice censuring the agency for failings in corporate governance, compliance and record keeping. The decision takes into account steps DBRS has taken to correct its infringement, ESMA said.

ESMA decided to take enforcement action after an investigation by its supervisory unit which examined DBRS' corporate governance, compliance and internal control functions, it said.

The supervisory unit found that DBRS did not meet requirements regarding: adequate record-keeping and audit trails of its activities, including records on compliance-related issues; internal procedures and controls, including decision-making procedures, reporting lines and allocation of responsibilities; and a permanent and effective compliance function.

ESMA has been solely responsible for supervision of credit rating agencies since July 2011. Where it discovers a breach of the CRA Regulation it has the power to take enforcement action, including issuing public censures, fines and withdrawing agencies' registrations.

The European Commission adopted a package of measures designed to apply “stricter new rules” for the regulation of credit rating agencies in September last year.

Three regulatory technical standards (RTS), adopted on 30 September 2014, set out disclosure requirements for issuers, originators and sponsors of structured finance instruments, the reporting requirements applicable to CRAs for the purpose of the European Rating Platform (ERP) and reporting requirements applicable to CRAs over fees to help the supervisory work of ESMA.

The RTS relating to the ERP are designed to allow investors “to consult and easily compare all available credit ratings for all rated instruments”, the Commission said at the time. This RTS “streamlines” the data reported by CRAs “in order to allow for more efficient data reporting” to ESMA. “It also integrates the existing reporting requirements for the purpose of historical performance data, available in the central repository established by ESMA, and for the purpose of ongoing supervision by ESMA,” it said.