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September 12, 2015

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Moody’s report slammed as ‘shoddy’

HONG Kong’s securities regulator yesterday said a Moody’s report questioning corporate governance at 49 Chinese firms was “shoddy” and “unprofessional” — a report the ratings agency said it stood by even though it contained errors.

The Securities and Futures Commission, citing internal Moody’s e-mails, said articles critical of Chinese companies by international newspapers and research firms had prompted Moody’s to “scrub” the list of Chinese companies whose credit it rated.

Credit ratings help determine a firm’s cost of borrowing and are used by fund managers to guide investment decisions.

“The work was shoddy, unprofessional and done in the manner that really doesn’t befit a reputable rating agency that is being regulated,” SFC counsel Ben Yu said at a hearing in the securities and futures appeals tribunal for Moody’s appeal of a US$3 million penalty.

Moody’s said there were some errors in its so-called red flags report in July 2011 and that they were not serious enough to warrant a HK$6 million (US$774,213) fine — part of the penalty by the SFC, which said the mistakes were a serious breach of due diligence standards.

Moody’s counsel, Adrian Huggins, told the tribunal: “Those errors did not render the whole red flags framework fundamentally flawed.”


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