Hong Kong Appeal Tribunal Fines Moody's $1.4 Million for Reportby
Credit-ratings service will also receive public reprimand
Moody's was found to have breached duties as rating agency
A Hong Kong tribunal said Moody’s Investors Service must pay a HK$11 million ($1.4 million) penalty for a report it issued in 2011 raising concerns about Chinese companies.
The research note used a system of red flags, concerns Moody’s had about weak corporate governance, opaque business models, and unclear financial reporting, at 61 companies. The case centered on whether the report qualified as a ratings notice and if it fell under the Securities and Futures Commission’s code of conduct. It was the first disciplinary action taken by the SFC since it started regulating credit ratings in 2011 and could also have ramifications for Moody’s competitors.
The Securities and Futures Appeals Tribunal ruled that the agency “was carrying on its regulated activity of providing credit-rating services,” the tribunal said in the ruling. It also determined “substantive breaches of general principles” of the code of conduct. The tribunal announced the ruling on Thursday after a holding a hearing in September.
“Moody’s must have appreciated that, at that time of very real concern, the report would carry considerable weight in the market and, importantly, would bear heavily on those corporations burdened with the highest number of red flags,” the tribunal said.
Moody’s misled the public and violated a code of conduct when it published the report, the SFC argued in the September hearing.
The rating company denied wrongdoing and in the same hearing said that the report titled “Red Flags for Emerging-Market Companies: a Focus on China,” was a primer on possible credit-rating reviews, rather than a review in itself. Moody’s also challenged the HK$23 million penalty and public rebuke imposed by the financial regulator in 2014 over the alleged misconduct.
Manvela Yeung, a Moody’s spokeswoman, declined to comment on the tribunal’s ruling.