CREDIT RATING COMPANIES RULES, 1995 (S.R.O. NO. 759(I)/1995, dated )

Transcription

1 CREDIT RATING COMPANIES RULES, 1995 (S.R.O. NO. 759(I)/1995, dated ) S.R.O.759(I)/95. In exercise of powers conferred by section 33 of the Securities and Exchange Ordinance, 1969 (XVII of 1969), the Federal Government is pleased to make the following rules to regulate the business of credit rating companies, namely:- 1. Short title and commencement. (1) These rules may be called the Credit Rating Companies Rules, (2) They shall come into force at once. 2. Definitions. (1) In these rules, unless there is anything repugnant in the subject or context, (a) Act means the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997); (aa) Code of Conduct means the Code of Conduct issued by the Commission under these Rules; (aaa) Commission means the Securities and Exchange Commission of Pakistan; (b) company means a company incorporated under the Companies Ordinance, 1984 (XLVII of 1984; (bb) (c) (cc) credit rating is a process of evaluating credit worthiness of an individual or company which expresses its ability and willingness to meet financial obligations in full and on time; credit rating company means a company which intends to engage in or is so engaged primarily in the business of evaluation of credit risk through a recognised and formal process of assigning credit rating to present or proposed loan obligations of any business enterprise; equity includes paid up share capital, reserves, subordinated loans and unappropriated profits after adjusting for accumulated losses, deferred tax reserves, surplus on re-valuation of fixed assets as described in section 235 of the Companies Ordinance, 1984, treasury stocks and redeemable preference shares; Explanation. For the purpose of this clause (g) the expression subordinated loan means a loan given or arranged by the sponsors, free of cost, to meet any shortfall in the minimum equity requirement specified under these Rules.;

2 (d) form means a form set out in the Schedule to these Rules; and (e) Ordinance means the Securities and Exchange Ordinance, 1969 (XVII of 1969). (2) Words and expression used but not defined in these Rules shall have the same meaning as assigned to them in the Companies Ordinance, 1984 (XLVII of 1984), the Ordinance and the Act. 3. Eligibility for registration. (1) A Company proposing to commence business as a credit rating company shall be eligible for registration under these rules if it fulfills or complies with the following conditions or requirements, namely:- (a) (b) That such company is incorporated as a limited company under the Companies Ordinance, 1984 (XLVII of 1984); that such company has entered into a joint venture or technical collaboration arrangement with an internationally recognised credit rating institution for a period of not less than five years;. ; Provided that the Commission may allow exit of 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. For the purpose of this clause (b), the internationally recognized credit rating institutions mean the foreign credit rating agencies specified by the Commission from time to time as internationally recognized credit rating institutions. (bb) that such company has a minimum equity of one hundred million rupees: Provided that existing credit rating company shall, after the date of notification of these amendments in the official Gazette, shall increase its equity to the said minimum threshold within a period of five years; (c) that no director, officer or employee of such company has been convicted of fraud or breach of trust or has been adjudicated as insolvent; (d) that the promoters of such company are, in the opinion of the AuthorityCommission, persons of means and integrity and have special knowledge of matters which the company may have to deal with as a credit rating company; and (e) that the chief executive of the company is not chief executive of any other company or holding similar position in any other company.

3 (2) No person shall provide the services of credit rating unless it is registered with the Commission as a credit rating company under these rules. 4. Registration.. (1) Any company which is eligible for registration under rule 3 as a credit rating company may make an application in Form I to the Commission for registration. (2) An application under sub-rule (1) shall, besides the other documents referred to in Form- I, be accompanied by a fee of one hundred thousand rupees as registration fee. (2) An application under sub-rule (1) shall, besides the documents referred to in Form-I, be accompanied by a receipt evidencing payment of registration fee of one million rupees. (3) The Commission may, if it is satisfied after making such enquiry and after obtaining such further information as it may consider necessary,- (i) (ii) that the applicant is eligible for registration; and that it would be in the interest of the capital market so to do; May grant a certificate of registration to such company in Form II. 5. Renewal of registration. (1) The certificate of registration of a company shall be valid for one year and shall be renewable on payment of a fee of two hundred and fifty thousand rupees through an application made on Form III. (2) The Commission shall, after making such enquiry and after obtaining such further information as it may consider necessary, renew the registration of such company for one year in Form IV within thirty days of the receipt of the application or further information, as the case may be. (3) Where the application for renewal of registration made under sub-rule (2) is not decided by the Commission within the time period mentioned therein, the registration shall continue to be valid until the application for renewal is decided by the Commission. 5A. Procedure where registration is not granted or renewed. (1) The Commission may, after providing a reasonable opportunity of hearing to the applicant, refuse to grant or renew the registration if in the opinion of the Commission such applicant does not fulfill the requirements prescribed in these Rules or where the Commission after taking into account the facts, is of the view that it is not in the public interest or in the interest of the capital market to grant or renew such registration. (2) The applicant, if aggrieved by the decision of the Commission under sub-rule (1) may, within a period of thirty days from the date of receipt of such refusal, apply to the Commission for review of its decision in addition to right of appeal under section 33 of the Act. (3) On receipt of the application made under sub-rule (2), the Commission may review its decision and communicate its findings, in writing, to the applicant within sixty days.

4 (4) A credit rating company whose application for renewal of registration is refused under sub-rule (1) shall, from the date of receipt of the decision of the Commission, cease to act as credit rating company and shall not accept any new rating assignment. (5) The Commission may allow a credit rating company whose application for renewal of registration is refused to continue to complete the rating of all the pending assignments if it considers that doing so is in the interest of the market in particular and the public in general. 5B. Suspension of registration. (1) Where a credit rating company contravenes or fails to comply with any provision of these Rules or fails to fulfill its obligations under the Code of Conduct or is not in compliance with conditions of registration or any directive, circular or order issued by the Commission, the Commission, after providing a reasonable opportunity of representation to the credit rating company may: (a) (b) (c) restrict its activities as credit rating company; suspend its registration; and impose a penalty to the extent and in the manner as provided in section 22 of the Ordinance. (2) Notwithstanding anything contained in sub-rule (1), where the Commission is satisfied that a delay in suspension of registration of the credit rating company is detrimental to the interest of investors or the capital market or the public in general, the Commission may immediately suspend the registration of the credit rating company till the time an opportunity of hearing is provided to the credit rating company and a final order is passed under sub-rule (1): Provided that where the Commission suspends the registration under this sub-rule, the opportunity of hearing and final order must be passed within ninety days from the date of such suspension order. (3) A credit rating company whose registration is suspended shall not undertake any new rating activity or assignment during the period of suspension and remove the cause of suspension within a period of one hundred and twenty days from the receipt of the suspension order or such earlier period as provided through the order of suspension. (4) The Commission while suspending the registration of a credit rating company may impose such conditions as it deems appropriate. 6. Cancellation of registration.- Where the is of the opinion that a credit rating company has contravened any provision, or has otherwise failed to comply with any requirement of the Ordinance or of any rule or direction made or given thereunder, the may, if it considers necessary in the public interest so to do, by order in writing, cancel the registration of the credit rating company: Provided that no such order shall be made except after giving the credit rating company an opportunity of being heard.

5 6. Cancellation of registration. Where the Commission is of the opinion that a credit rating company has contravened any provision, or has otherwise failed to comply with any requirement of the Ordinance or of any rule or direction made or given thereunder, the (1) The Commission may, after providing a reasonable opportunity of representation to the credit rating company, cancel the registration of a credit rating company if,- (i) (ii) (iii) in the opinion of the Commission the credit rating company has been in violation of these Rules or the Code of Conduct or restriction imposed under sub-rule (1) of Rule 5B; or it is found guilty of fraud; or its registration has been suspended and the cause of suspension has not been removed within one hundred and twenty days from the receipt of the suspension order or such earlier period as provided through the order of suspension. (2) The registration of a credit rating company shall stand automatically cancelled if such credit rating company,- (i) (ii) (iii) voluntarily surrenders its certificate of registration to the Commission; or is declared insolvent by a Court; or is wound up voluntarily or by an order passed by a Court. (3) Upon cancellation of registration, the credit rating company shall with immediate effect cease to carry out any new rating activity and transfer all necessary record including but not limited to documents, reports connected with its rating activities which may be in its custody or control in accordance with such directions as the Commission may specify. (4) The Commission while cancelling the registration of a credit rating company may impose such conditions as it deems appropriate. 6A. Applicability of Code of Conduct. Every credit rating company shall comply with the Code of Conduct for the credit rating companies issued and amended from time to time by the Commission. 7. Power of the Authority to give directions.- The Commission may, if it is satisfied that it is necessary or expedient so to do in the public interest or in the interest of capital market, by order in writing, give direction to a credit rating company. 7. Power of the Commission to issue directions, code, etc. The Commission may, if it is satisfied that it is necessary or expedient so to do in the public interest or in the interest of the capital market, by order in writing, give direction, or issue code or circulars, to a credit rating company. 8. Submission of rating reports to the Commission. (1) Every credit rating company shall submit to the Commission a report giving sector-wise details of credit rating notified during the year, ratings upgraded, ratings downgraded, list of clients switched over, fee structure and

6 any other information, as may be specified by the Commission in writing from time to time, within four months of the close of its accountingfinancial year. (2) Without prejudice to the provisions of sub-rule (1), a credit rating company shall furnish to the AuthorityCommission such other documents, information or explanation relating to its affairs as the AuthorityCommission may, at any time, by order in writing, require. 9. Restriction on Directors of Credit Rating Companies. (1) No director of the credit rating company shall be a director of a corporate entity or a business firm or a share holder holding 5% or more of any corporate entity or business firm or in any other way interested in such an entity subject to rating by the rating company: Provided that this restriction shall not apply to a director of a 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: Provided further that the director of the rating company shall inform the Commission of such nomination within fifteen days of the receipt of rating mandate from such entity together with an undertaking that he shall not participate in the rating process of that entity; and (2) Neither any change in the shareholding of a rating company shall be made nor the chairman and chief executive of a rating company shall be changed, appointed or re-appointed without prior approval of the Commission, in writing. (3) The Commission may, after expiry of the minimum period as prescribed in clause (b) of rule 3, order cessation of the applicability of the provisions of rule 3 to a rating company where the Commission is of the opinion that it would be in the interest of capital market so to do. 10. Secrecy. 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.

7 11. Appointment of compliance officer. Every credit rating company shall designate any of its officers as a compliance officer possessing relevant qualification and experience who shall, in addition to his own duties, be responsible for the functions as specified in the Code of Conduct. 12. Power of the Commission to inspect and investigate. The Commission may conduct inspection and investigation of the credit rating companies in the same manner as provided in the Act. 13. Dissemination of information regarding cancellation of registration. The Commission may, for information of the stakeholders, publish press release of its order of cancellation of registration of a credit rating company in the newspapers of wide circulation in the country.

8 SCHEDULE FORM I [See rule 4 (1)] FORM OF APPLICATION FOR REGISTRATION AS A CREDIT RATING COMPANY To The Corporate Law Authority, Government Securities and Exchange Commission of Pakistan, Islamabad. Dear Sir, We hereby apply for registration of...(name of Credit Rating Company) under rule 4 of the Credit Rating Companies Rules, A copy of the Memorandum and the Articles of Association is enclosed. 2a. Original receipt of the bank for the fee of Rs...being the registration fee is enclosed. 3. Necessary information required in the annex to this Form is furnished. We undertake to keep the information up to date at all times. Yours faithfully, Signature of the Chief Executive

9 Annex To Form I 1 Name, address and telephone number(s) of the company. 2 Date and place of incorporation. 3 Names and addresses of promoters and directors. 4 Details of joint venture or technical collaboration agreement and/or joint venture with an internationally recognized credit rating company and a copy of such an agreement and documentary evidence in respect thereof. 5 Proposed rating methodology and scale of rating. 6 Whether any director has been convicted of fraud or breach of trust in the past five years. 7 Whether any director has been adjudicated as insolvent. 8 Names, CNIC numbers and addresses of senior management officers including the rating analysts. 9 Whether any officer or employee has been convicted of fraud or breach of trust in the past five years. 10 Whether any senior management officer has been adjudicated as insolvent or has suspended payment or has compounded with his creditors. 11 Previous experience of the promoters/directors in the credit rating field. 12 Previous experience of senior management officers. Note :- (i) (ii) An affidavit shall, from each promoter/director and officer in respect of statement at serial Nos. 6 and 7, be submitted. Certification by the proposed chief executive of the company in respect of statement at serial Nos. 9 and 10 shall be submitted.

10 FORM II (See rule 4(3) CERTIFICATE OF REGISTRATION AS CREDIT RATING COMPANY GOVERNMENTSECURITIES AND EXCHANGE COMMISSION OF PAKISTAN CORPORATE LAW AUTHORITY No. Islamabad, the The Corporate Law AuthorityThe Securities and Exchange Commission of Pakistan having considered the application for registration under rule 4 of the Credit Rating Companies Rules, 1995 by...(name of the credit rating company). and being satisfied that the said company is eligible for registration and that it would be in public interest and in the interest of the capital market so to do, hereby grants, in exercise of the powers conferred by rule 4 of the Credit Rating Companies Rules, 1995 registration to......(name of the credit rating company) subject to the provisions of the Securities and Exchange Ordinance, 1969 (XVII of 1969) and the rules made thereunder. 2. This certificate of registration is valid up to... Signature of the Officer

11 To FORM III (See rule 5(1) FORM OF APPLICATION FOR RENEWAL OF REGISTRATION AS A CREDIT RATING COMPANY Dear Sir, Corporate Law Authority GovernmentSecurities and Exchange Commission of Pakistan, Islamabad. We hereby apply for the renewal of the registration of...(name of the credit rating company). under rule 5 of the Credit Rating Companies Rules, The certificate of registration/ certificate of renewal is due to expire on Original receipt of the treasury/bank for the fee of Rs...being the renewal fee is enclosed. 4. It is requested that the registration be renewed for the calendar year... Yours faithfully, Signature of the Chief Executive

12 FORM IV (See rule 5(2) CERTIFICATE OF RENEWAL OF REGISTRATION AS CREDIT RATING COMPANY GOVERNMENT SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN CORPORATE LAW AUTHORITY No. Islamabad, the The Corporate Law AuthoritySecurities and Exchange Commission of Pakistan having considered the application for renewal of registration under rule 5 of the Credit Rating Companies Rules, 1995 by...(name of the credit rating company) and being satisfied that it would be in public interest and in the interest of the capital market to renew the registration of...(name of the credit rating company). hereby grants, in exercise of the powers conferred by rule 5 of the Credit Rating Companies Rules, 1995, certificate of renewal of registration to the said company subject to the provisions of the Securities and Exchange Ordinance, 1969 (XVII of 1969) and the rules made thereunder. Signature of the Officer