ESMA fines Scope EUR 2,197,500 for breaches of conflict of interest obligations

The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, has fined Scope Ratings GmbH (Scope) a total of EUR 2,197,500, and issued a public notice, for breaches of the Credit Rating Agencies Regulation (CRA Regulation).

ESMA found that Scope fell short of the CRA Regulation’s requirements on handling conflicts of interest. This finding resulted from structural failures and specific breaches of the conflict of interest obligations in the CRA Regulation.

Verena Ross, ESMA’s Chair, said:

“Scope failed to comply with their obligations when it comes to avoidance of potential conflicts of interest. ESMA places the protection of investors and the pursuit of stable and orderly markets at the core of its mission. Failures by credit rating agencies to properly identify, prevent and manage potential conflicts can damage the proper functioning of markets and create harm for investors.
Through its supervisory role, ESMA will continue to focus on ensuring that credit rating agencies comply with all of their responsibilities, including those relating to conflicts of interest.”
The five breaches covered by the fine specifically relate to:

structural shortcomings in Scope’s policies and procedures, internal control mechanisms and organisational and administrative arrangements;
two further specific breaches related to Scope’s failure linked to a potential conflict of interest regarding one particular individual; and to disclose in the final rating report the provision of ancillary services to a rated entity.
All breaches were found to have resulted from negligence on the part of Scope. In calculating the fine, ESMA considered both aggravating and mitigating factors provided for in the CRA Regulation.

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