THE Securities Commission Malaysia (SC) has announced a review of its existing framework aimed at bolstering the independence of credit rating agencies (CRAs). This includes a focus on rating committees and their composition.
In a recent statement, the regulatory body noted the critical importance of maintaining the independence and objectivity of credit assessment processes and rating decisions by CRAs. The credibility of credit rating opinions hinges on this independence, according to the SC.
To safeguard this principle, the SC’s Credit Rating Agency Guidelines (CRA Guidelines) outline a series of obligations that CRAs must consistently adhere to. Among these obligations is the requirement for the appointment of board members and chief executive officers of CRAs to undergo a fit and proper assessment, subject to SC approval.
“Other requirements include the establishment of a rating committee comprising experienced, qualified and independent members to assign and decide on all credit ratings, thus avoiding board and shareholders involvement in rating discussions and decisions.
“Additionally, the SC said the chair of the rating committee must be a qualified and independent member. The SC will continue to take proactive measures to strengthen rating independence and objectivity, and where required, impose additional conditions to approvals given to applicants,” it said.
SC intends to mandate that a majority of board members both in holding and rating companies as well as the rating committee be independent.
Moreover, any decision to distribute dividends to shareholders will require prior approval from the SC, ensuring that CRAs maintain sufficient resources for their rating operations.
Addressing recent reports regarding potential changes in the shareholding structure of RAM Holdings Bhd (RAM), SC clarified that any alteration resulting in an individual controlling 20% or more of the paid-up capital of a CRA necessitates prior approval.
Subsequent cumulative increases in shareholding of 10% or more also require SC approval.
“In evaluating such applications, the SC considers, among others, the value proposition proposed by applicants, vis-a-vis the increasing competitive environment that CRAs are operating in.
“These include product expansion, business growth and sustainability, regional collaboration, enhancement of skill sets and overall contribution to the development of the local credit rating industry and the Malaysian bond market,” it further added.
“This is in line with the aims of the Capital Market Masterplans. To date, the SC has given approval to more than one applicant to hold more than 20 per cent shareholding in a CRA.” – May 10, 2024
