The Securities and Exchange Commission of Pakistan (SECP) has introduced a new regulatory framework for new and existing credit rating agencies and made it mandatory for new companies seeking licenses from the Commission to fulfil laid down conditions/restrictions and already registered credit rating agencies to obtain licenses on payment of renewal fee. The SECP has issued Credit Rating Companies Regulations, 2016 here on Monday for both the new and existing credit rating agencies.
As per new regulations, no person shall act as or perform the functions of a credit rating company unless such person is licensed by the Commission under these regulations and the credit rating company licensed under these regulations shall not carry out any other regulated activities. Provided that a credit rating company already registered under the Credit Rating Companies Rules, 1995 shall be required to obtain license under the Act within three months of coming into force of these regulation subject to payment of renewal fee as prescribed under these regulations: However during the said three months, existing credit rating company shall be deemed to be licensed as a credit rating company under these regulations.
Provided further that credit rating company registered under the Credit Rating Companies Rules, 1995 shall comply with all the requirements of these regulations within a period of one year from the date of coming into force of these regulations.
Any person may apply to the Commission for grant of license to act as credit rating company under these regulations, if such person fulfils the laid down conditions. It has obtained permission of Commission; it is public company incorporated under the Companies Ordinance, 1984; it ) meets the financial resources requirement provided under these regulation. Its promoters or sponsors, proposed directors, chief executive and chairman of the board of directors fulfil the Fit and Proper criteria. Its promoters or sponsors, substantial shareholders and directors have deposited their shares with Central Depository Company of Pakistan Ltd in an account marked as blocked and such shares shall not be sold or transferred without prior written approval of the Commission:
Provided that the directors holding qualifying shares, maximum up to 2 percent of total share capital shall be exempt from this requirement. Its promoters or sponsors or substantial shareholders and directors have given an undertaking that they shall not enter into any agreement for sale or transfer of their shares in any manner without prior approval of the Commission. It has entered into a joint venture or technical collaboration arrangement with an internationally recognised credit rating institution:
Provided that the joint venture or technical collaboration arrangement should include comprehensive review of rating policies, procedures and methodologies of the company at least once every three years: Provided further that the Commission may allow the company to terminate its joint venture or technical collaboration agreement with the international credit rating institution after the completion of five years of such collaboration if it deems that technical expertise have been transferred and retained by the domestic credit rating company;
Explanation: The internationally recognised credit rating institutions mean foreign credit rating agencies specified by the Commission from time to time as internationally recognised credit rating institutions. The Commission may also conduct a pre-licence assessment or a visit of the premises of the applicant to verify the genuineness of information submitted and to ensure that it has deployed necessary infrastructure to carry out its functions as a credit rating company in a satisfactory and compliant manner.
Restrictions on Credit Rating Companies: No person other than the following shall, directly or indirectly, acquire or hold shares of a credit rating company: A financial institution as defined under clause (15A) of subsection (1) of section 2 of the Companies Ordinance, 1984; an insurance company; a licensed securities exchange; a company licensed by the Commission to provide depository, clearing or settlement services in the securities market; a foreign credit rating agency recognised by or under any law for the time being in force in the country of its incorporation; an institution as may be notified by the Commission from time to time; or an individual meeting fit and proper criteria as specified in these regulations.
The credit rating company shall not provide rating services to a company where any of its director is holding a directorship or is a substantial shareholder or is in any way interested in such company subject to rating. Provided that the directors of the credit rating company, prior to the every meeting of board of directors, shall give an undertaking that they have no conflict of interest with any of the rating mandate being carried out by the company.
Provided further that this restriction shall not apply to a director of a credit rating company nominated as a director of an entity by the Federal Government or a Provincial Government or an institution which is directly or indirectly owned or controlled by the Federal Government or a provincial government.
A credit rating company must not accept a rating assignment where a person directly or indirectly, holding more than 10 percent of share capital of the credit rating company also holds directly or indirectly 10 percent or more of the share capital of the entity which is subject to rating or of the entity which issued the instrument subject to rating by the credit rating company.
A credit rating company shall not change its shareholding without prior written approval of the Commission. No director, officer or employee of the credit rating company shall communicate the information, acquired by him for use for rating purposes, to any other person except where required under law to do so.
A proposed director, chairman or chief executive of the credit rating company shall not assume the charge of office until its appointment has been approved by the Commission in writing. The application for seeking approval of the Commission shall be submitted by the credit rating company along with the requisite Information required under the Fit and Proper Criteria along-with the undertakings specified therein:
Provided that the existing credit rating company shall take prior approval from the Commission for re-appointment of its existing chief executive and its board of directors. The SECP said that the credit rating company shall not rate its own instruments; hold or transact in trading instruments presenting a conflict of interest with credit rating company; rate its associated companies and undertakings or the Instruments issued by them; disclose or discuss with outside parties or make improper use of the non-public information which has come to its knowledge during business relationship with the customer; issue rating for entities or obligations for which it does not have appropriate information, knowledge and expertise and accept a rating assignment where a customer has terminated a rating contract with its existing credit rating company before its expiry, unless such customer obtains No Objection Certificate from its existing credit rating company or ensures in writing that it shall continue credit rating with its existing credit rating company for a period of at least one year.
A credit rating company licensed under these regulations shall fulfil the obligations. Conduct of Business: A credit rating company shall fulfil its obligations in a fair, efficient, transparent and ethical manner and render high standards of services in performing its functions and obligations; engage independent foreign or local experts at least once in every three years to conduct comprehensive review of its rating policies, procedures and methodologies with a view to revamp its existing rating system,; Terms of reference of the foreign or local experts shall be finalised with the prior written approval of the Commission. Provided that this clause shall not be applicable to a credit rating company which is continuing its joint venture or technical collaboration arrangement.
A credit rating company shall have internal control procedures or policies and financial and operational capabilities which can be reasonably expected to protect, its operations, its customers; develop a human resource policy encompassing the recruitment, selections compensation, promotions, trainings, and other human resource related matters; establish a human resource committee headed by an independent director of the credit rating company, to ensure implementation of human resource policy and manual for its employees and establish and maintain comprehensive risk management systems and controls to enable it to identify, assess, mitigate, control and monitor risks arising from its activities and frame policies and procedures to ensure its own and its employees' compliance with the regulatory requirements, the SECP added.
Comments
Comments are closed.