The biggest Nordic bank is considering taking on the European Union’s top markets regulator after being handed a fine for providing credit ratings without a license.
Nordea Bank AB, together with four other major Nordic banks, was called out by the European Securities and Markets Authority for selling so-called shadow ratings to corporate clients without permission. Each firm was told to pay a fine of 495,000 euros, or $580,000, for the breach.
Nordea said on Monday that it discontinued shadow ratings in 2016, “although we disagree with ESMA” on the interpretation of the rules. “As for today’s fine, Nordea has just received the information and will decide if to appeal after having analyzed the information,” the lender said in a statement.
Nordea, Danske Bank A/S, SEB AB, Svenska Handelsbanken AB and Swedbank AB were hit with identical fines by ESMA for issuing credit ratings without authorization from June 2011 to August 2016. SEB continued the practice until May 2018, the regulator said. Handelsbanken said it’s preparing an appeal.
Nordic banks offered shadow ratings as a cheaper alternative to the credit grades provided by S&P Global Ratings, Moody’s Investors Service and Fitch Ratings. Lenders in the region said they were catering to smaller corporations that wanted access to debt markets without having to pay the higher fees that the major rating agencies required.
The practice “was generally considered by Nordic bond issuers and bond investors to have served the market well,” Nordea said. The lender said its reading of the rules was that “investment research materials are explicitly exempted” from the rule in question.
Handelsbanken said it’s of the opinion that it’s “compliant with the applicable EU regulations.” SEB described ESMA’s interpretation of the rules as narrow and said it may also appeal the decision. Swedbank said it will analyze ESMA’s conclusion, and noted that it has in the past “objected” to a preliminary decision by the authority.
The banks at the receiving end of ESMA’s fines are also part of a group behind a Nordic venture to create a new regional rating company. Nordic Credit Rating says it expects to be granted a license by ESMA as soon as next month.
NCR’s application would grant it permission to rate companies in the EU and the European Free Trade Association. The firm, which is owned by Nordic banks, bourses and investment funds, has said it is targeting about 500 companies across the region.