Handelsbanken to challenge fine for illegal 'shadow credit ratings'

Handelsbanken Shutterstock 759416848

Five Scandinavian banks have been fined a total of €2.5m (£2.2m) for providing "shadow credit ratings" without gaining regulatory approval, the EU's markets regulator said today – although at least one of the lenders intends to appeal.

The European Securities and Markets Authority (Esma) said Danske Bank, Nordea Bank, SEB, Svenska Handelsbanken and Swedbank had all issued credit ratings without authorisation.

However, a spokesperson for Handelsbanken said: "We are of the opinion that we are compliant with the applicable EU regulations and we intend to appeal the decision at a higher level".

Meanwhile, Nordea, SEB and Swedbank all said they are considering their options. The banks will have to take appeals to the Board of Appeal of the European Supervisory Authorities.

The banks, who were fined €495,000 each, issued credit research reports which included "opinions" on firms and their debt instruments which constituted credit ratings in Esma's view.

European authorities cracked down on credit ratings agencies in the aftermath of the global financial crisis in 2008, before which the agencies were perceived to have been too lax in their approach to complex financial instruments, resulting in abrupt downgrades which contributed to market instability.

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The five lenders gave out the ratings for more than five years up to August 2016, although Esma said they have all since taken voluntary measures to stop the practice.

SEB, which continued the practice as late as May 2018 even after an initial warning, said in a statement that is will pay the fine and adjust its practices, but is considering appealing the ruling. The bank said Esma had adopted a stricter interpretation of an exception for investment analysts in the rules.

Danske Bank said that it has now created an independent credit rating agency, Nordic Credit Rating, to carry out ratings of small firms when they are looking for finance.

Peter Rostrup-Nielsen, executive vice president of Danske Bank said: “We apologise for having misinterpreted the rules. We consider it important to ensure that we comply with the rules applicable."

A Swedbank spokesperson said: "Swedbank has previously objected to the preliminary decision from ESMA, and will now analyse the decision."

A Nordea spokesperson said: "Nordea discontinued its shadow ratings in August 2016 , although we disagree with Esma on the basis that investment research materials are explicitly exempted under Article 3(2) of the CRA Regulation. As for today’s fine Nordea has just received the information and will decide if to appeal after having analysed the information."

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Full story: Handelsbanken to challenge fine for illegal 'shadow credit ratings': City A.M.

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