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SEC charges credit rating agency with misrepresentation | Canadian Insurance

SEC charges credit rating agency with misrepresentation

DBRS Inc. has agreed to pay nearly $6 million to settle charges

The SEC has charged credit rating agency DBRS Inc. with misrepresenting its surveillance methodology for ratings of certain complex financial instruments during a three-year period. The firm agreed to pay nearly $6 million to settle the charges.

Read: SEC filed 807 enforcement actions in FY2015

An SEC investigation that followed an annual examination of DBRS by the agency’s Office of Credit Ratings found that the firm misrepresented it would monitor on a monthly basis each of its outstanding ratings of U.S. residential mortgage-backed securities (RMBS) and re-securitized real estate mortgage investment conduits (Re-REMICs) by conducting a three-step quantitative analysis and subjecting each rating to review by a surveillance committee. The firm did not conduct the analysis on a monthly basis nor did it present each rating to the surveillance committee each month, and when the committee convened it reviewed only a limited subset of the outstanding RMBS and Re-REMIC ratings. DBRS did not have adequate staffing and technological resources to conduct surveillance for each of its outstanding RMBS and Re-REMIC ratings monthly as stated in its surveillance methodology.

The SEC’s order instituting a settled administrative proceeding further finds that DBRS did not disclose changes to certain surveillance assumptions as the methodology stated that the firm would do.

“Rating agencies play a critical role in the capital markets and have an obligation to investors to comply with their published rating and surveillance methodologies,” said Andrew J. Ceresney, director of the SEC’s Division of Enforcement. “Lack of resources is no excuse for failing to conduct surveillance promised in various SEC filings and other public documents.”

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