03 June 2014

ESMA censures Standard & Poor's for internal control failings

ESMA issued a public notice censuring Standard & Poor’s Credit Market Services France SAS and Standard & Poor’s Credit Market Services Europe Limited for breaches of the CRA Regulation when falsely reporting on France's downgrade in 2011.

The decision by ESMA to issue a public notice results from its investigation into the erroneous publication on 10 November 2011 by S&P, to the subscribers of its Global Credit Portal (GCP), of an email stating "France (Republic of) (Unsolicited Ratings): DOWNGRADE", although S&P's rating of France had not been downgraded. ESMA found that this incident was the result of a failure by S&P to meet certain organisational requirements set out in the CRA Regulation, relating to sound internal control mechanisms, effective control and safeguard arrangements for information processing systems and decision-making procedures and organisational structures.

ESMA, based on the provisions of the CRA Regulation, decided that the relevant breaches warranted a supervisory measure in the form of a public notice. The final decision on the supervisory measure took into account the steps taken by S&P to end the infringement and was considered proportionate to the seriousness of the breach. 

S&P’s internal database, where it maintained its credit ratings, was also used to store its Banking Industry Country Risk Assessments (BICRAs). BICRAs are not credit ratings but assessments of the banking systems in particular countries and have been published since 2006. S&P later decided to maintain BICRAs in the same centralised internal database as its credit ratings and to display BICRAs on GCP.

The relevant technical specifications for this project treated BICRAs as ratings and no effective action was taken to address the implications this could have. This eventually led to the erroneous release when an attempt to change an incorrect display of France’s BICRA on GCP triggered an email alert stating in its header that the rating of France had been downgraded.

Full press release

Full decision notice

© ESMA