Moody's Fined 5 Billion KRW for Violating European Supervisory Authority's Conflict of Interest Rules

Credit Rating Assigned to Berkshire Hathaway Affiliate, Largest Shareholder

[Image source= EPA Yonhap News]

[Asia Economy Reporter Byunghee Park] Credit rating agency Moody's has been fined 3.7 million euros (approximately 4.93 billion KRW) by the European Securities and Markets Authority (ESMA). This is because Moody's assigned credit ratings to affiliates of Berkshire Hathaway, its largest shareholder, which violated ESMA's conflict of interest prevention regulations.

According to the Wall Street Journal on the 30th (local time), ESMA imposed a fine of 3.7 million euros on Moody's business units in the UK, France, Germany, Italy, and Spain.

This was due to Moody's assigning credit ratings to UK power company Powergrid and German insurer Munich Re, both of which Berkshire Hathaway holds more than a 10% stake in. Berkshire Hathaway is Moody's largest shareholder, holding 13% of Moody's shares.

ESMA prohibits credit rating agencies from assigning credit ratings to companies where major shareholders hold more than a 10% stake or have board seats, as there is a possibility of assigning favorable credit ratings to shareholders. Additionally, ESMA strictly restricts the disclosure of credit ratings for companies with more than a 5% stake.

According to the regulations, Moody's cannot assign credit ratings to companies related to Berkshire Hathaway.

According to ESMA, Moody's assigned credit ratings to Powergrid bonds worth 105 million euros in 2015, at which time Berkshire Hathaway held more than 10% of Powergrid's voting rights and also had board seats.

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