Moody’s fines: A symptom of “big business”

by Daniel Cash

In the first of the European regulations of the credit rating industry post-financial crisis, the issue of independence and reducing conflicts of interests was, unsurprisingly, high on the agenda. However, the focus was placed upon the independence of rating analysts and separating them from the commercial elements of the credit rating agency; very little was said of the larger organisational structure of the agency. ¹ In 2013, the EU sought to address this shortcoming and amended the suite of regulations so that the focus was also placed upon the many influential shareholders of credit rating agencies, which is a vitally important element of the independence of the rating agency, whether perceived or actual. ² However, on 30 March 2021, the European Securities and Markets Authority (ESMA) announced that it had fined Moody’s €3.7 million across five of its European-based operations for flouting these very rules. ³ This regulatory action brings a very important issue to light regarding the credit rating arena, and this short piece will review that issue.