Credit Rating Services Act, 2012 (Act No. 24 of 2012)Board NoticesCredit Rating Agency RulesPart VI : Additional Obligations in Relation to Credit Ratings of Structured Finance Instruments11. Structured finance instruments |
| (1) | Where a credit rating agency rates a structured finance instrument, it must provide in the published credit rating report all information about loss and cash-flow analysis it has performed or is relying upon and an indication of any expected change in the credit rating. |
(2)
| (a) | A credit rating agency must disclose in the credit rating what level of assessment it has performed concerning the due diligence processes carried out at the level of the underlying security or financial instruments or other assets of structured finance instruments. |
| (b) | A credit rating agency must disclose whether it has undertaken any assessment of such due diligence processes or whether it has relied on a third-party assessment. indicating how the outcome of such assessment impacts on the credit rating. |
| (c) | Where third-party due diligence services are employed by a credit rating agency, such agency must, at the time it produces a credit rating, disclose any certifications from providers of such third-party due diligence services to the public in a manner that allows the public to determine the adequacy and level of due diligence services provided by the third-party. |
(3)
| (a) | Where a credit rating agency issues credit ratings of structured finance instruments, it must accompany the disclosure with details of methodologies, models and key rating assumptions with clear and easily comprehensible guidance which explains assumptions, parameters, limits and uncertainties surrounding the models and rating methodologies used in such credit ratings, including simulations of stress scenarios undertaken by the agency when establishing the ratings. |
| (b) | Where external data or information is used the credit rating agency must identify sources of the key elements of the external data and information underlying its credit rating. |
| (4) | A credit rating agency must disclose, on an ongoing basis, information about all structured finance instruments submitted to it for its initial review or for preliminary rating. Such disclosure must be made quarterly whether or not an entity enlists the services of the credit rating agency for a final rating. |
| (5) | A credit rating agency must assess whether existing methodologies and models for determining credit ratings of structured finance instruments are appropriate when the risk characteristics of the underlying assets of a structured finance instrument change materially. |
| (6) | In cases where the complexity or structure of a new type of structured finance instrument or the lack of robust data about the assets underlying the structured finance instrument raise serious questions as to whether a credit rating agency can determine a credible credit rating for the rated entity, the credit rating agency must refrain from issuing a credit rating. |
| (7) | Where a credit rating agency rates a structured finance instrument, it must provide investors and subscribers with sufficient information on the transaction so that an investor intending to invest in the product can understand the basis for the agency's rating. |
| (8) | A credit rating agency must disclose how sensitive the rating of a structured finance instrument is to changes in the agency's underlying rating assumptions. |