* Error took place during euro zone debt crisis
* ESMA says error due to failure to apply EU rules
* S&P says ESMA found no intent or negligence
(Recasts with more detail, background, S&P reaction)
By Huw Jones and Chris Vellacott
LONDON, June 3 Europe's markets watchdog
censured credit ratings agency Standard & Poor's on
Tuesday for incorrectly announcing a cut in France's debt, which
compounded investor fears during the euro zone debt crisis.
The error in November 2011 gave European Union lawmakers
ammunition to pass three sets of laws to crack down on ratings
agencies in the 28-country bloc, where they face some of the
toughest rules in the world.
The European Securities and Markets Authority (ESMA) said
that the incident, involving an email sent out to subscribers
stating, "France (Republic of) (Unsolicited Ratings):
DOWNGRADE", when S&P's rating of France had not been downgraded,
The move, which amounted to an embarrassing public dressing
down rather than financial penalties, marks the first
enforcement action by the watchdog against a ratings agency
after it took over responsibility for regulating the sector in
the European Union in July 2011.
S&P is one of the world's "Big Three" ratings agencies - the
other two are Moody's and Fitch - who dominate
the ratings globally.
S&P spokesman Martin Winn said the agency welcomed ESMA's
findings that there was no intent or negligence on S&P's part in
"We publicly acknowledged the error at the time, which was
unrelated to our ratings or ratings analysis. We have since
enhanced our systems to safeguard against such an incident in
the future," Winn said.
S&P had already angered EU policymakers who said its
downgrade of Greek sovereign debt to junk status in April 2010
made it harder to put together a rescue package for the country.
The French false downgrade was sent to subscribers of S&P's
web-based Global Credit Portal, used by the agency to
disseminate its financial data products including credit
The mistake was the result of the rating agency's failure to
meet internal control requirements set out in the EU's credit
rating agency regulation, ESMA said.
"ESMA found that this incident was the result of a failure
by S&P to meet certain organisational requirements set out in
the CRA Regulation, relating to sound internal control
mechanisms, effective control and safeguard arrangements for
information processing systems and decision-making procedures
and organisational structures," ESMA said in a statement.
S&P was criticised at the time for taking nearly two hours
to correct its mistake, by when the market had closed.
The clarification sent the euro higher against the dollar as
investors were relieved that a major euro zone country had not
ESMA said the investigation took time as it was the first
ever by the watchdog, a process that requires the case to be
heard by an independent investigating officer, with a right of
reply for S&P.
The watchdog has set aside a budget of 5 million euros and
25 staff to supervise the 20 or so rating agencies it has
authorised to operate in the EU, most of them small.
ESMA has a total budget of 33 million euros this year with
staffing set to reach 184 people in its Paris office. There is
another enforcement case relating to a ratings agency with the
independent investigation officer, it added.
(Editing by Jeremy Gaunt)