SECP issues new regulatory regime for credit rating agencies

In line with its efforts to strengthen the capital market and as part of subsidiary legislation under the Securities Act, 2015, the Securities and Exchange Commission of Pakistan (SECP) has accorded it approval to the Credit Rating Companies (CRC) Regulations, 2016. The regulations introduce a new regulatory regime for the CRCs on the best international practices, and have removed the shortcomings in the existing CRC regime.
Earlier comprehensive consultation sessions were held with all key stakeholders. The regulations were finalised after these consultation sessions. In addition to incorporating feedback that had been received earlier during public consultation. The new regulatory regime introduces various new requirements and strengthens the existing requirements for the CRCs to help achieve the objectives of investor education. It also ensures continuity of business of the existing CRCs through a phased implementation of certain new requirements.
A significant aspect of the new regulatory regime is the introduction of detailed licensing regime for the CRCs with fit and proper criteria for promoters, chief executives, directors and senior management officers. In order to promote new entrants into the market, the financial resource requirement has also been introduced in the new regulatory framework and to promote corporate norms and continuity in the business, categories of shareholders have been prescribed with a cap on their shareholdings. In line with the principles set out by the International Organisation of Securities Commission (IOSCO), in its revised code of conduct for CRCs, detailed business conduct and internal control requirements have been introduced to ensure that the interests of investors and other stakeholders are adequately protected.
Given the significance of quality of the ratings process, enhanced role for rating committee has been prescribed with detailed fit and proper criteria for members of the rating committee and rating analyst. The regulations will help achieve the objectives of best governance practices, disclosure of conflict of interest, and would bring about further transparency to the process through introduction of various disclosure requirements enabling the stakeholders to take unbiased and informed decisions.
In order to avoid potential conflict of interest, adequate provisions have been provided in relation to disclosure and shareholding of CRCs. The regulations provide an enabling environment for further growth of CRCs, streamlining relevant market practices. It is expected that the new regime will strengthen investor protection and transparency by implementing enhanced disclosure, quality in rating process through quality human resources. The regulations are also expected to build investor confidence in CRCs in the country, and will improve standards of the rating process in line with the international credit rating companies.-PR