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SC lays out conditions for credit rating agency independence

Among others, the appointment of board members and CEOs should be subject to assessment as well as SC approval, while agencies should also form a rating committee to keep board members and shareholders from getting involved.

Staff Writers
2 minute read
The Securities Commission headquarters in Kuala Lumpur.
The Securities Commission headquarters in Kuala Lumpur.

The Securities Commission Malaysia (SC) today reiterated that credit rating agencies (CRA) must comply with the guidelines laid out by the statutory body, to ensure that their independence and objectivity in terms of the credit assessment process and rating decisions remain uncompromised.

In a statement, it said the CRA guidelines include subjecting the appointment of board members and CEOs to “fit and proper assessment” as well as the SC’s approval.

Agencies are also required to form a rating committee comprising experienced, qualified and independent members to assign and decide on all credit ratings to avoid board members and shareholders becoming involved in rating discussions and decisions.

“Additionally, the chair of the rating committee must be a qualified and independent member,” it said.

The SC said it would continue to take proactive measures to strengthen rating independence and objectivity.

Where required, it said, it would impose additional conditions to approval given to applicants.

“Going forward, the SC intends to make it a requirement for the majority of board members at both the holding and rating companies, as well as the rating committee, to be independent, and for any decision to provide dividend to shareholders to require the SC’s prior approval, to ensure that the CRA continues to operate with sufficient resources to sustain its rating operations,” it said.

The SC’s remarks come a day after RAM Holdings passed a proposal allowing it to come under the ownership of a single entity – CTOS Digital.

More than 93% of the members at its annual general meeting yesterday voted in favour of a controversial amendment to the company’s constitution that would lift the ban on any single entity owning more than 20% of its shares.

The proposal to amend the clause was put forth by CTOS Digital, another credit reporting agency linked to Brahmal Vasudevan through his equity firm Creador.

The move first reported by MalaysiaNow last week is expected to ruffle feathers in the debt capital market, on the back of a plan by CTOS Digital to own a majority stake in the company.

The SC however said today that any change of shareholdings that results in a person controlling 20% or more of a CRA’s paid-up capital will require the prior approval of the SC.

“The SC’s prior approval is also required for any subsequent cumulative increase in shareholding of 10% or more of the paid-up capital of the CRA,” it said, adding that both these requirements are prescribed under the CRA guidelines.

“To date, the SC has given approval to more than one applicant to hold more than 20% shareholding in a CRA.

“Other than acquiring shareholding in an existing CRA, applications can also be made for the establishment and registration of a third rating agency, subject to the requirements stated in the CRA guidelines. Shareholders of CRAs can be companies, including public-listed companies, in line with similar practices in other jurisdictions,” it said.