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Moody's (MCO) Loses Appeal Against SFC's Order in Hong Kong

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Moody’s (MCO - Free Report) appeal against the Securities and Futures Commission’s (SFC), which regulates Hong Kong's securities and futures markets, regulatory proceedings has been dismissed by Hong Kong’s Court of Final Appeal. These proceedings relate to a report issued by the company in 2011 for which the SFC had alleged that the report violated the regulatory body’s code of conduct.

Moody’s Investors Service Hong Kong Limited — the Hong Kong rating arm of Moody’s — published a report in July 2011 titled “Red Flags for Emerging-Market Companies: A Focus on China.” The report brought forward issues in corporate governance and accounting practices of several Chinese companies that led to a drop in the share prices of those companies.

Following this, in 2014, the SFC took disciplinary action against Moody’s. The regulator alleged that the company had neither provided adequate grounds for the issues highlighted nor ensured the accuracy of the report. This was further confirmed by the Securities and Futures Appeals Tribunal (SFAT) and a fine amounting to $11 million was imposed on the company in 2016.

Moody’s had appealed to the Court of Final appeal against the SFAT’s judgment in 2017 that has now been quashed. The reasons for upholding the SFAT’s judgment have not yet been stated.

Per a Moody’s spokesperson, "Moody’s is disappointed that the Court of Final Appeal has dismissed its appeal regarding the scope of the SFC’s jurisdiction but we recognise its importance for market clarity."

Recently, the Securities and Exchange Commission also imposed a $16-million fine on Moody’s for assigning incorrect ratings to various securities.

Credit rating agencies have increasingly been coming under the regulatory scanner. In July 2018, the European Securities and Markets Authority levied a penalty of EUR 495,000 on Danske Bank AS (DNKEY - Free Report) for issuing unauthorized credit ratings. In February 2018, the Australian Securities and Investments Commission’s investigation revealed flaws in rating issue procedures, followed by the Australian rating arms of various companies such as S&P Global (SPGI - Free Report) , Equifax (EFX - Free Report) and Fitch Ratings.

Shares of Moody’s have gained 33.8% in the past year, against the 3.6% decline recorded by the industry.

Currently, Moody’s carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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