ESMA’s investigation found that flaws in procedures and their implementation at S&P led to the premature release of ratings for securities of six issuers. Deficiencies in S&P’s compliance function were also uncovered during the course of the investigation, along with the finding that S&P “submitted inaccurate and out-of-date information to ESMA”.

The premature release problem was discovered by S&P and the ratings were removed and then republished later. This removal and republication, while completely understandable, simply ran the organisation into deeper trouble with the regulator however.

Infringement

ESMA deemed the removal of the ratings from S&P’s public platform as a ‘discontinuation’ of the ratings under the rules. If a rating is discontinued, a rating agency is required to publicly disclose the decision to discontinue along with a full rationale for it. S&P did not make this disclosure, possibly because this consequence of removing the rating and republishing it was simply not understood by the teams involved.

ESMA viewed this not only as an infringement of the rules, but one that was negligent because the special care expected from S&P as a professional firm in the financial services sector was not exercised.

This is a slightly unusual case given that it involves a credit rating agency, but what it does demonstrate more generally is how difficult remaining compliant can be when the rules and regulations intersect technology and business-as-usual website working practice. S&P will be able to appeal ESMA’s decision.