An agency hired by the Government to provide credit ratings has admitted Securities and Exchange Commission violations and has been fined millions of dollars in penalties.

The offences are related to longstanding failures to preserve electronic records, including off-channel communications on personal and work-issued devices.

The SEC charged the Kroll Bond Rating Agency and another company for the violations.

Gurbir S. Grewal, director of the SEC’s Division of Enforcement said: “Credit rating agencies are gatekeepers in our securities markets that are subject to record-keeping requirements – requirements that aren’t optional, but rather foundational to the commission’s ability to maintain fair, orderly and efficient markets.

“If there’s an allegation of wrongdoing at the credit rating agency, the commission must be able to review preserved documents to determine what happened. If there is an examination, our examiners must be able to look at relevant documents to assess compliance issues.”

The SEC’s order finds that, since at least January 2020, KBRA employees, including senior executives and heads of rating groups, sent and received numerous text messages concerning credit rating activities on their personal and KBRA-issued mobile devices.

The messages included discussions of initiating, determining, maintaining, monitoring, changing or withdrawing credit ratings.

KBRA did not maintain or preserve the substantial majority of these off-channel communications, in violation of record-keeping provisions of the federal securities laws.

KBRA admitted the SEC’s findings and agreed to pay a $4 million penalty, cease and desist from committing violations of the relevant record-keeping provisions, and to be censured.

KBRA also agreed to retain an independent compliance consultant to, among other things, conduct a comprehensive review of its policies and procedures relating to the retention of electronic communications and its framework for addressing noncompliance by its employees with those policies and procedures.

Osman Nawaz, chief of the SEC Enforcement Division’s Complex Financial Instruments Unit said: “Given their critical gatekeeping function, rating agencies are required to disclose how ratings are determined and to have effective internal controls to ensure they adhere to their ratings methodologies.”

In October, David Burt, the Premier and Minister of Finance, announced that KBRA had affirmed Bermuda’s long-term and short-term issuer ratings at A+ and K1+, respectively.

The Premier stated at the time: “The stable outlook for this year is based on continued fiscal restraint, the recovery of tourism and KBRA’s expectations for durability in Bermuda’s status as a financial hub.”

Meanwhile, the SEC found that a second agency, DBRS Inc, was guilty of similar offences, but also of violating disclosure and internal control provisions of the federal securities laws in rating certain commercial mortgage-backed securities.

To settle the charges, DBRS agreed to pay $8 million in civil penalties.