Credit Rating Services Act, 2012 (Act No. 24 of 2012)Board NoticesCredit Rating Agency RulesPart III : Independence and Avoidance of Conflicts of Interest5. Conflicts of interest |
| (1) | A credit rating agency must identify, eliminate or manage and record and disclose, clearly and prominently, any actual or potential conflicts of interest that may influence the analysis and judgments of its analysts, employees, or any other natural person whose services are placed at the disposal or under the control of the credit rating agency, and who are directly involved in the issuing of credit ratings and persons approving credit ratings. |
| (2) | A credit rating agency's disclosures of actual and potential conflicts of interest must be complete, timely, clear, concise, specific and prominent. |
| (3) | Where a credit rating agency receives compensation unrelated to its ratings service from a rated entity, originator, arranger, client or subscriber, it must keep record of the proportion that such non-rating fees constitute against the fees the credit rating agency receives from the entity for rating services. |
| (4) | A credit rating agency must disclose if it receives ten per cent or more of its annual revenue from a single rated entity, originator, arranger, client or subscriber (including any affiliates of that issuer, originator, arranger, client or subscriber). |
| (5) | A credit rating agency may not issue a credit rating in any of the following circumstances, or must, in the case of an existing credit rating, immediately publicly disclose where the credit rating is potentially affected by the following— |
| (a) | the credit rating agency or persons referred to in sub-paragraph (1), directly or indirectly own securities or financial instruments in the rated entity or a related third party or have any other direct or indirect ownership interest in that entity or party, other than holdings in collective investment schemes, pension funds or life insurance; |
| (b) | the rated entity or a related third party is directly or indirectly linked to the credit rating agency by control; |
| (c) | a person referred to in sub-paragraph (1) is a member of the senior management of the rated entity or a related third party; or |
| (d) | an analyst who participated in determining a credit rating, or a person who approved a credit rating, has had a relationship with the rated entity or a related third party which may cause a conflict of interest. |
| (6) | A credit rating agency must immediately assess whether there are grounds for re-rating or withdrawing the existing credit rating referred to in sub-paragraph (5). |
| (7) | A credit rating agency must ensure that analysts or persons who approve ratings do not make proposals or recommendations or give advice, either formally or informally, regarding the design of structured finance instruments on which the credit rating agency is expected to issue a credit rating. |
| (8) | A credit rating agency must design its reporting and communication channels so as to ensure the independence of the persons referred to in sub-paragraph (1) from the other activities of the credit rating agency carried out on a commercial basis. |
| (9) | A credit rating agency must not refrain from taking a rating action based on the potential effect (economic, political, or otherwise) of the action of the credit rating agency on a rated entity, an investor, or other market participant. |
| (10) | A credit rating agency and its analysts must use care and professional judgment to maintain both the substance and appearance of independence and objectivity. |
| (11) | The credit rating that a credit rating agency assigns must not be affected by the existence of or potential for a business relationship between the credit rating agency (or its affiliates) and the rated entity (or its affiliates) or any other party, or the non-existence of such a relationship. |
| (12) | A credit rating agency must separate operationally its credit rating business from any other businesses of the credit rating agency, particularly a business that may present a conflict of interest. |
| (13) | A credit rating agency must ensure that ancillary business operations which do not necessarily present a conflict of interest with the credit rating agency's rating business have procedures and mechanisms in place designed to minimise the likelihood that conflicts of interest will arise. |