Intellectual Property Rights from Publicly Financed Research and
R 385
Credit Rating Services Act, 2012 (Act No. 24 of 2012)Board NoticesBoard Notice 228 of 2013Part III : Independence and Avoidance of Conflicts of Interest6. Analyst and employee independence |
| (1) | An analyst or an employee of a credit rating agency, or the spouse, partner or minor child of an analyst or employee, may not buy or sell or engage in any transaction in any securities, guaranteed, or otherwise supported by a rated entity within the analyst's area of primary analytical responsibility, other than holdings in collective investment schemes, pension funds or life insurance. |
| (2) | A credit rating agency must ensure that an analyst employed by the credit rating agency is not compensated or evaluated on the basis of the amount of revenue that the credit rating agency derives from issuers that the analyst rates or with which the analyst regularly interacts. |
| (3) | A credit rating agency must conduct formal and periodic reviews of its compensation policies and practices for analysts and other employees, who participate in or who might otherwise have an effect on the rating process, to ensure that these policies and practices do not compromise the objectivity of the agency's rating process. |
| (4) | A credit rating agency may not have employees, who are directly involved in the rating process, also involved in discussions regarding fees or payments with any rated entity, or potential rated entity, related third party or any person directly or indirectly linked to the rated entity by control. |
| (5) | A credit rating agency employee may not participate in, or otherwise influence, the determination of the credit rating agency's rating of any particular rated entity, if the employee— |
| (a) | owns securities or financial instruments of the rated entity, other than holdings in diversified collective investment schemes, pension funds or life insurance; |
| (b) | owns securities or financial instruments of any entity related to a rated entity, the ownership of which may cause or may be perceived as causing a conflict of interest, other than holdings in diversified collective investment schemes, pension funds or life insurance; |
| (c) | has had a recent employment or other significant business relationship with the rated entity that may cause or may be perceived as causing a conflict of interest; |
| (d) | has an immediate relation, such as a spouse, partner, parent, child, or sibling, who currently works for the rated entity where this employment relationship constitutes a conflict of interest; or |
| (e) | has, or had, any other relationship with the rated entity or any related entity thereof that may cause or may be perceived as causing a conflict of interest. |
| (6) | An analyst who becomes involved in any personal relationship that creates the potential for any real or apparent conflict of interest, including any personal relationship with an employee of a rated entity or agent of such entity within his or her area of analytic responsibility, must be required to disclose such relationship to the appropriate manager or officer of the credit rating agency, as determined by its compliance policies. |
| (7) | An analyst or employee of the credit rating agency may not take up a key management position with a rated entity which the employee or analyst has rated or its related third party within six months of the issuing or review of the credit rating. |
| (8) | A credit rating agency must establish policies and procedures for reviewing the past work of analysts who leave the employ of the credit rating agency and join a rated entity the analyst has been involved in rating. |
| (9) | A credit rating agency must have policies and procedures in place to ensure that— |
| (a) | the lead analyst is not involved in credit rating activities related to the same rated entity or its related third parties for a period exceeding five years; |
| (b) | a person approving a credit rating is not involved in credit rating services related to the same rated entity or its related third parties for a period exceeding seven years. |
| (10) | A person referred to in sub-paragraph (9)(a) or (b) may not be involved in credit rating activities related to the rated entity or related third parties referred to in those paragraphs within two years of the end of the periods set out in those paragraphs. |
| (11) | A credit rating agency must establish, maintain, and enforce policies and procedures to ensure that the ratings issued by an analyst or employee of the credit rating agency are subject to review should it be established that a conflict of interest of the employee influenced the credit rating; and that the credit rating agency may take action to revise the rating if appropriate, in accordance with such policies and procedures. |
