binding and reader is advised to consult the authoritative Hebrew text in all matters which may affect them. Chapter A: Definitions

Transcription

1 The following translation is intended solely for the convenience of the reader. This translation has no legal status and although every effort has been made to ensure its accuracy, the ISA does not assume any responsibility whatsoever as to its accuracy and is not bound by its contents. Only the original Hebrew text is d binding and reader is advised to consult the authoritative Hebrew text in all matters which may affect them. Law to Regulate the Activity of Credit Rating Companies * Definitions Chapter A: Definitions 1. In this Law Related Party to a corporation is any of the following: (1) Controlling shareholder in a corporation or any party controlled by the controlling shareholder or by the corporation; (2) A senior officer in any of the entities stated in paragraph (1); (3) A family member of any of the entities stated in paragraph (1) or paragraph (2); (4) An employee of any of the entities stated in paragraph (1) or anyone employed by any entity stated in that paragraph; (5) A corporation controlled by any entity stated in paragraphs (1) through (3); Family member Senior corporate officer misleading item control means of control as defined in the Securities Law; Rating Assessment of the creditworthiness of a corporation as an entity, or assessment of the likelihood of repayment of an issued financial instrument, according to a comparative scale determined to measure the ability to meet obligations, according to an assessment methodology determined by a credit rating company; Credit rating company a company engaged in rating that is registered under this Law; The Companies Law Companies Law ; 1 The Investment Advice Law Regulation of Investment Advice, Investment Marketing, and Investment Portfolio Management Law ; 2 Joint Investment Trust Law Joint Investment Trust Law Securities Law Securities Law ; 4 Financial instrument any of the following: (1) Securities, as defined in Section 1 of the Securities Law; (2) Securities issued by the government; (3) Units of a closed-end fund, as defined in the Law of Joint Investments in Trust; (4) An agreement or arrangement whose value is a function of the value of currencies, commodities, interest rates, exchange rates, indices, or the value of any other financial instrument; (5) Any other financial instrument so designated by the Minister, at the suggestion of or in consultation with the ISA, with approval of the Knesset Economic Affairs Committee; Participant in a rating process Any member of a rating committee and any individual directly involved in rating activities, or whose approval is required to determine a rating according to the rules determined by a credit rating company; The ISA The Israel Securities Authority, established under the Securities Law; Assessment methodology The assessment methodology determined by a credit rating company under Section 11; *Passed by the Knesset on 17 Adar II 5774 (March 19, 2014); Bill and explanations published in Government Bills 786 dated 2 Av, 5773 (July 9, 2013), p Sefer HaHukim (Book of Laws) 5759, p Sefer HaHukim (Book of Laws) 5755, p Sefer HaHukim (Book of Laws) 5754, p Sefer HaHukim (Book of Laws) 5728, p. 234.

2 Rated corporation a corporation regarding which a rating was determined, or a corporation that issued or was a guarantor to a financial instrument in respect of which a rating was determined; The Minister the Minister of Finance. Chapter B: Registration of Credit Rating Companies Prohibition on engagement without registration 2. (a) No person shall engage in rating unless registered as a credit rating company, as stated in Section 4. (b) No person shall impersonate a credit rating company or use any designation or title that may create the impression that he is a credit rating company. Application for registration 3. (a) A company that elects to register as a credit rating company (in this Law the Applicant) shall submit an application for registration to the Chairperson of the ISA. (b) The applicant shall include in the application for registration details, documents, and reports as determined by the Minister, at the suggestion of or in consultation with the ISA. Registration of a credit rating company 4. The chairperson of the ISA, or an ISA employee authorized by the ISA chairperson for this purpose in writing, shall register the applicant as a credit rating company if he finds that it satisfies all of the following requirements: (1) It is incorporated as a company under the Companies Law or is registered as a foreign company under Section 346 of the Companies Law; (2) It or a company held by it engages in no other activity other than rating and the provision of such services as stated in Section 17; (3) It meets the requirements defined by the Minister, at the suggestion of or in consultation with the ISA, with the approval of the Knesset Economic Affairs Committee, including with respect to the matters described below, and the Minister may issue different instructions with regard to rating different classes of financial instruments, (a) Capital and insurance; (b) The technical means required for the activity of the credit rating company; (c) Employees in rating companies and their qualifications; (4) It paid the fees determined under Section 51, if any. Denial of application to register a credit rating company 5. The chairperson of the ISA, or an ISA employee authorized in writing by the ISA chairperson for this purpose, shall not refuse to register an applicant that meets the conditions of Section 4, unless such refusal is for reasons related to the applicant s reliability, the reliability of its controlling shareholder, or the reliability of a senior officer of the applicant or of a controlling shareholder thereof; The chairperson of the ISA, or an ISA employee authorized in writing by the ISA chairperson for this purpose, may stipulate conditions for registration of a credit rating company, provided that he does

3 not deny the application for registration and does not stipulate such conditions unless he notifies the applicant of his reasons and gives the applicant opportunity to present its arguments to him before he issues a decision. Obligation to notify the ISA of a defect in reliability 6. (a) A credit rating company shall notify the ISA of the existence of any of the following circumstances, in Israel or outside Israel, regarding the credit rating company, its controlling shareholder or senior officer, upon learning of such circumstances, and no later than the end of the first day of business thereafter: (1) Conviction of an offense; (2) An indictment was filed or a disciplinary proceeding was held due to the commission of an offense; (3) Investigation or administrative enquiry concerning the commission of an offense or violation of a provision of an economic law, by an agency authorized to conduct investigations or administrative enquiry procedures, as the case may be; (4) Payment of a monetary sanction as an alternative to a criminal proceeding related to the violation of the provisions of an economic law, or an administrative procedure conducted due to a violation of said provisions, the possible outcome of which is the imposition of administrative enforcement measures; (5) Payment of a monetary fine or receipt of a demand for such payment, due to a violation of a provision of an economic law; (6) A judicial decision in a civil action or a civil action filed in respect of a violation of a provision of an economic law, including an action in the form of an action filed under Section 63 of the Tort Ordinance [New Version], 5 provided that said action includes allegations of fraud or negligence. (b) A senior officer of a credit rating company and a controlling shareholder of a credit rating company shall notify the credit rating company of the existence of any of the circumstances stated in subparagraph (a), immediately upon learning of this, and shall include in their notice the information required by the credit rating company to fulfill its duty according to said subparagraph. (c) In this Section Administrative enforcement measures as defined in Chapter 8-D of the Securities Law. (d) Provision of an economic law and offense as defined in Section 9A(d) of the Joint Investment Trust Law; (e) Monetary sanction as an alternative to a criminal proceeding as defined in Section 260(A) of the Companies Law. Revocation of registration 7. (a) The ISA may revoke the registration of a credit rating company, after it has been given an opportunity to present its arguments to the ISA, if any of the following obtain with respect to the credit rating company: (1) Registration of the credit rating company was based on false information; (2) The credit rating company ceased to engage in rating for a period of 12 consecutive months; 5 Laws of the State of Israel, new version 10, p. 266.

4 (3) The credit rating company no longer meets one of the registration requirements, as stated in Section 4; (4) Circumstances listed in subparagraph (c), which attest that it is not worthy of practicing as a credit rating company (hereinafter, defect in reliability); such circumstances shall be examined with respect to the credit rating company, its controlling shareholder and senior officers of the credit rating company or of the controlling shareholder thereof; (5) The credit rating company failed to rectify the violation as instructed by the chairperson of the ISA under subparagraph (b), or failed to rectify the violation within the designated period so instructed. (b) If the chairperson of the ISA finds that the credit rating company violated a provision of this Law or a provision or instruction of the ISA, the chairperson of the ISA may order rectification of the violation within a period as he so designates. (c) The ISA shall determine a list of circumstances that attest to a reliability defect of a credit rating company, its controlling shareholder or senior officer of the credit rating company or of the controlling shareholder thereof; Said list shall be published on the ISA website and enter into force 30 days after publication date; However, no amendment to the list shall apply to a proceeding that is pending under subparagraph (a)(4); notice of publication of the list and of any amendment to the list, and the date of their application, shall be published in Reshumot. (d) A credit rating company shall report to the public and to the chairperson of the ISA if it no longer engages in credit rating, and its registration shall be revoked; However, the chairperson of the ISA may issue instructions to a company whose registration was revoked, if he finds that such instructions protect the interests of the investor public. Chapter C: Corporate Governance Board of Directors 8. (a) In this chapter, external director and bond company as defined in the Companies Law. (b) The majority of the members of the board of directors of a credit rating company shall have expertise in finance, and at least one third of the members of the board of said company shall be external directors with expertise in finance; In the matter of appointment of external directors, a privately owned credit rating company is subject to the same laws as a bond company, and the provisions of Sections 239 through 249C of the Companies Law shall apply, mutatis mutandis; However, the board of directors shall not approve the appointment of an external director as stated at the end of Section 242(b) of the Companies Law before the external directors in office have reviewed and confirmed that he satisfies the required qualifications according to this Section. (c) The Minister, at the suggestion of or in consultation with the ISA, and with approval of the Knesset Economic Affairs Committee, may issue instructions in these matters: (1) Conditions and tests for directors with financial expertise; (2) The functions of the external directors; provisions according to this paragraph shall be determined in consultation with the Minister of Justice.

5 Functions of the Board of Directors 9. (a) The functions of the board of directors of a credit rating company shall include: (1) To supervise the credit rating company s compliance with the requirements of this Law; (2) To supervise the independence of the company s rating activities, and their detachment from any political or economic commitment or influence; (3) To supervise the identification and treatment of conflicts of interest pursuant to the provisions of this Law; (4) To supervise the company s internal auditing function and its internal enforcement program; (5) To supervise the existence of the means necessary to produce ratings pursuant to the provisions of this Law; (6) To supervise the existence of procedures to determine and update the assessment methodologies; (7) To appoint an internal auditor, to review his functioning and to discuss his findings and how to rectify the defects he finds; In this matter, the provisions of Sections 146 through 153 of the Companies Law shall apply, mutatis mutandis; (8) To inspect whether the internal auditor has at his disposal the necessary resources and tools to perform his duties, taking into account the unique needs of the company and its size, among other things; (9) To supervise establishment of the procedures that the company is required to determine according to Section 48; (10) To supervise the credit rating company s compliance with the registration requirements according to Section 4; (11) To discuss any topic of material importance to the company s activity or to its supervision and control. (b) The board of directors of a credit rating company shall perform its duties without involvement in or influence on the rating process. (c) The positions of the external directors on the issues listed in subparagraph (a) shall be presented to the board of directors periodically, as determined by the board of directors, and to the ISA, at its demand. Compliance Officer 10. (a) An officer serving in a credit rating company will be responsible to fulfill the company s obligations under this Law (in this Law the Compliance Officer). (b) The appointment and dismissal of a Compliance Officer are subject to the approval of the board of directors, in a resolution adopted by a majority of the external directors. (c) The Compliance Officer shall take steps to ensure performance of the credit rating company s obligations, including instructions and procedures determined by the company under this Law, and shall supervise the company s employees in order to ensure that their actions conform to the requirements of the Law, and for this purpose the Compliance Officer shall be granted such authority and means as to enable him to perform his duties. (d) The Compliance Officer will report regularly to the general manager of the credit rating company and to its external directors of his activities and the manner in which he performs his duties.

6 (e) The Compliance Officer will not engage in rating, will not participate in the development of assessment methodologies, will not perform marketing or selling activities, and will not participate in the determination of salary brackets for employees, with the exception of the employees subordinate to him. (f) The remuneration of the Compliance Officer shall not be dependent upon the credit rating s business performance. (g) The Minister, at the suggestion of or in consultation with the ISA, and with the approval of the Knesset Economic Affairs Committee, may issue instructions concerning the functions of the Compliance Officer. Chapter D: The Rating Process Assessment methodologies 11. (a) A credit rating company shall determine assessment methodologies for the purpose of determining ratings, which may be based on quantitative or qualitative features or a combination of both. (b) A credit rating company shall, from time to time, conduct a review of the quality and reliability of the assessment methodologies that it determines, as necessary, and in a manner that allows it to perform its activities according to this Law. (c) The ISA may determine dates for performing the review, as stated in subparagraph (b), and such dates may apply to a specific rating or specific rating categories; Dates concerning rating categories shall be published on the ISA website and notice of their publication and of any amendment to them, and the date of their application, shall be published in Reshumot. The rating 12. (a) A credit rating company shall act in an appropriate manner to obtain the information required to determine ratings, to ensure the quality of the information on which the ratings are based, and to ensure reliability of sources of information. (b) A credit rating company shall determine ratings based on all the information it received as stated above in subparagraph (a) and on all other information in its possession that is related to the determination of ratings, and pursuant to the assessment methodology. (c) A credit rating company shall apply an assessment methodology in a systematic and consistent manner for all the ratings that have similar features; If the credit rating company believes that the selected assessment methodology should be modified, it may do so only regarding all the ratings that have similar features, provided that it reports such modifications according to the regulations under Section 52(a)(3). (d) If the credit rating company modifies the assessment methodology that it selected, as stated in subparagraph (c), it shall examine the impact of the modification on the ratings that it determined and report these effects pursuant to the regulations under Section 52(a)(3). (e) A credit rating company shall avoid determining a rating in the event of a material doubt regarding its ability to do so in a credible manner, and if a rating was so determined shall take steps to revoke the rating.

7 (f) A credit rating company that employs individuals who are not employees of the company shall ensure that they have the necessary skills and experience to prevent any adverse effect on the quality of the rating, the company s standard of compliance with the provisions of this Law, or the potential to enforce the provisions of this Law on the credit rating company; nothing in the aforementioned shall derogate from the credit rating company s liability by any law. Misleading information Rating committee 13. No rating, reporting, notification or document submitted according to this Law, or any other publication on behalf of a credit rating company, shall contain any misleading item. 14. (a) A rating shall be determined by a credit rating company through committees appointed by the credit rating company (in this Law the rating committee). (b) The rating committee shall comprise at least three members, one of whom shall be the chair of the committee. (c) Persons who are not authorized to participate in the rating process may not participate in the committee s meetings or otherwise influence its decisions. (d) Participants in the rating process shall have the skills and experience necessary to perform their duties. Reviewing and revising ratings 15. (a) A credit rating company shall determine and publish procedures on the matters stated hereinafter, and shall act upon them: (1) The frequency of the periodic review and revision of ratings, no less than once annually; (2) The examination and revision of ratings following types of events that concern the rated corporation or the financial instrument, regarding which the rating was determined. (b) The ISA may determine instructions concerning the review and revision of ratings by credit rating companies as stated in subparagraph (a). Chapter E: Conflict of Interests and Independence of the Rating Process Credit rating company independence and prevention of conflicts of interest 16. (a) A credit rating company shall be independent in the performance of its activities as stated in this Law, shall act exclusively according to professional considerations, and shall not take action in the event of a conflict of interests. (b) Without derogating from the generality of subparagraph (a), a credit rating company (1) Shall not make rating conditional upon the purchase of other services from it;

8 (2) Shall determine the fee it charges for its services independently of the results of the rating that it determines or any other outcome of a service that it renders; (3) Shall not provide, either directly or indirectly, advice or recommendations concerning the legal or corporate structure, the assets, liabilities, or activities of a rated corporation or any entity related to it, or concerning the design of financial products that it is rating now or in the future; (4) Shall not determine a rating for a corporation for whom any of the following obtains: (a) It is controlled, either directly or indirectly, by the credit rating company; (b) (c) Its financial instrument is held by the credit rating company; It is a related entity to the rating company: For this purpose, related entity includes any party that holds five percent or more of the voting rights in the credit rating company; (5) Shall not determine a rating if any event listed in paragraphs (1) through (6) in Section 18(b) obtain. (c) Payment received by a credit rating company for a rating by an investor who commissioned the rating or by a participant in a sale, shall not be deemed a violation of the provisions of subparagraph (a); In this Section, participant in a sale any party participating in the sale of a financial instrument to the public, including underwriters, distributors, issuers, or offerors, as defined in the Securities Law, who are participating in said sale, and lenders or borrowers, or any entity related to any of these. (d) A credit rating company that receives payment from a participant in a sale (1) Shall publish, for each rating determined, the details of the entity who paid for the rating, (2) Shall determine and publish procedures to treat conflicts of interests relating to said payments and shall act upon the same procedures to revoke or maximally restrict the impact of said conflicts of interest. (e) If a participant in a rating process of a rated corporation is employed by the rated corporation after his employment in the credit rating company was concluded, in a manner that raises suspicions of a conflict of interest, the credit rating company shall re-examine the ratings in which he participated in the two years preceding the beginning of his employment by the rated corporation. (f) If a conflict of interest is suspected regarding a specific rating, the credit rating company shall examine the need to revoke or revise the rating. Prevention of conflicts of interest in rendering ancillary services 17. (a) A credit rating company shall engage exclusively in rating; However, subject to the provisions of law, it may render ancillary services that do not give rise to suspected conflict of interests with its rating practice; For this purpose, ancillary services services required for rating or services that are by their very nature connected to rating work, provided that their scope is negligible compared to the rating work, as approved by the ISA. (b) Notwithstanding the provisions of subparagraph (a), a credit rating company may, with the approval of the ISA, engage in awarding relative scores to other assets and services. (c) A credit rating company that engages in the services stated in subparagraphs (a) and (b)

9 (1) Shall publish to the public that it renders such services, including notice of the type of services it renders; (2) Shall determine and publish procedures to prevent a conflict of interest in rendering said services. Preventing conflicts of interests on part of participants in the rating process 18. (a) A participant in a rating process shall not act under a conflict of interests in performing his role in the rating process. (b) Without derogating from the generality of that stated in subparagraph (a), a participant in a rating process (1) Shall not engage in commercial activities, including marketing activities, nor shall he engage in negotiations with clients regarding payments and terms of engagement, with any rated corporation or any related party thereof; (2) Shall not hold, either directly or indirectly, any financial instrument, the holding of which may cause him to be in a conflict of interests; Nothing in the provisions of this section prohibit holding of a financial instrument through a joint investment, as defined in the Law of Joint Investments in Trust; (3) Shall not maintain ties with any rated corporation or related party thereof in a manner that may cause him to be in a conflict of interests; (4) Shall not participate in a rating process if he had business or other ties with a rated corporation, which may cause him to be in a conflict of interests; (5) Shall not accept money, gifts, or other benefits from any entity with which the credit rating company maintains business ties; (6) Shall not serve as a senior officer in a rated corporation or a corporation that is a related party to a rated corporation until the end of a period of six months from the date on which the rated corporation s rating is determined. (c) The salary terms of a participant in the rating process and the benefits granted to him shall not be conditional upon the credit rating company s revenues from the rating process of which he is a participant. (d) A credit rating company shall determine procedures regarding the identification, prevention, management, and public disclosure of conflicts of interests that may affect the judgment of a participant in a rating process. Restriction on holdings 19. (a) No party related to a credit rating company shall be related to another credit rating company, with the exception of a parent company or a subsidiary of the credit rating company, as defined in the Securities Law; For this purpose, any party holding five percent or more of the voting rights in a credit rating company is also deemed to be a related party. (b) The following entities, the persons controlling them or controlled by them or persons controlled by entities controlling them, shall not hold, either directly or indirectly, means of control in a credit rating company: (1) A provident fund or a management company, as defined in the Control of Financial Services (Provident Funds) Law ; 6 6 Sefer HaHukim (Book of Laws) 5765, p. 889.

10 (2) An insurer, as defined in the Control of Financial Services (Insurance) Law ; 7 (3) A portfolio manager, as defined in the Regulation of Investment Advice Law; (4) A fund manager, as defined in the Law of Joint Investments in Trust; (5) A banking corporation, as defined in the Banking Law (Licensing) Additional instructions in the matter of preventing a conflict of interests 20. (a) The Minister, at the suggestion of or in consultation with the ISA, and with the approval of the Knesset Economic Affairs Committee, may, in order to ensure the independence of the rating process and prevent conflicts of interest, issue instructions in addition to the provisions of this Law, including instructions concerning the following matters: (1) The terms of engagement of credit rating companies with clients; (2) Restrictions on the period of engagement of credit rating companies with clients; (3) Restrictions on the revenue of credit rating companies from a specific rated corporation; (4) A rotation mechanism of participants in a rating process of a specific financial instrument or corporation. (b) In regulations under subparagraph (a), the Minister may issue different instructions for different types of credit rating companies or different classes of financial instruments. Chapter F: Functions and Authority of the ISA ISA supervision of credit rating companies 21. (a) In fulfilling its obligations according to this Law, a credit rating company shall be under the supervision of the ISA. (b) Without derogating from the provisions of this Law, the ISA may, for the sake of the supervision stated in subparagraph (a), issue instructions concerning the modes of operation and management of any credit rating company or corporation in Israel that is a related party to a credit rating company, in order to ensure the proper management of the credit rating company and to protect the interests of the investor public; Such instructions and any modification thereto shall be made available for public perusal at ISA offices, and shall be published on the ISA website, and the ISA may issue instructions regarding additional modes of publication of these instructions. Independence of the rating content and rating methodologies Powers of the ISA 22. Notwithstanding the provisions of this Law, the ISA shall not intervene in the contents of the rating or in the assessment methodologies of the credit rating companies Sefer HaHukim (Book of Laws) 5741, p Sefer HaHukim (Book of Laws) 5741, p. 232.

11 Imposition of monetary sanctions by the ISA Notification of intent to fine (a) To ensure the performance of this Law, or if there are reasonable grounds to assume that a violation was committed, as defined in section 24 or 39, the chairperson of the ISA or an ISA employee authorized for this purpose in writing by the chairperson of the ISA may (1) Demand, of any person, any information or documents concerning the business of a credit rating company or concerning said violation; (2) Enter, after having identified himself, the site at which he has reasonable grounds to assume that credit rating company activity is taking place, and which is not used exclusively as a residence, and demand that the documents stated in subparagraph (1) be handed over to him; However, no such document shall be seized if a copy of the document is sufficient. (b) The provisions of section 56A(b) of the Securities Law shall apply to the return of documents handed over to the ISA under subparagraph (a). Chapter G: Imposing Monetary Sanctions by the ISA 24. Where a person violates a provision of this Law that applies to him, as stated in the First Addendum (in this chapter an offender, and a violation, respectively), the ISA may impose a monetary sanction on him according to the provisions of this chapter, in the amount as stated with respect to him in the Second Addendum. 25. (a) Where the ISA has reasonable grounds to assume that a violation was committed, and it intends to impose a monetary sanction on the offender under this chapter, the ISA shall notify the offender of its intention (in this chapter notice of intent to fine), provided that no more than three years have elapsed from the date of the commission of the violation. (b) In the notice of intent to fine, the ISA shall include the following, among other things: (1) Details of the act or omission (in this chapter the act) that constitutes the violation; (2) The amount of the monetary sanction that may be imposed on the offender due to the violation, and the term of payment pursuant to the provisions of section 31; (3) The offender s right to present its arguments to the ISA, pursuant to the provisions of section 26; (4) The additional amount of monetary sanction for an ongoing or repeat violation, pursuant to the provisions of section 28, and the date after which the violation will be deemed an ongoing violation for the purpose of said section. Right of argument ISA decision and payment demand 26. An offender who receives notice of intent to fine may present his arguments to the ISA in writing, in the matter of the intention to impose a monetary sanction upon him and of its amount, within 45 days from the delivery date of the notice, and the ISA may extend said period by an additional period not exceeding 45 days.

12 27. (a) The ISA shall decide, after weighing the offender s arguments presented to it under the provisions of section 26, whether to impose a monetary sanction on the offender, and the ISA may reduce the amount of the monetary sanction according to the provisions of section 29. (b) Where the ISA decided, pursuant to the provisions of subparagraph (a) (1) To impose a monetary sanction on the offender, the ISA shall deliver a demand to pay the monetary sanction (in this chapter the demand for payment); In the demand for payment, the ISA shall note, among other things, the current amount of the monetary sanction that must be paid by the offender, as stated in section 30, and the date of payment, pursuant to the provisions of section 31; (2) Not to impose a monetary sanction on the offender, the ISA shall deliver notice of this to the offender. (c) The ISA shall list the reasons for its decision in the demand for payment or notice under subparagraph (b). Continuing violation and repeat violation 28. (a) In the case of a continuing violation, two percent shall be added to the amount of the monetary sanction for each day on which the violation continues. (b) The total amount of the monetary sanction under subparagraph (a) shall not exceed three times the amount, the imposition of which was permitted in respect of the sanction, had the sanction not been an ongoing sanction, and in the matter of failure to file a report on the determined date in violation of the provisions of section 52 up to five times the amount, the imposition of which was permitted to be imposed in respect of the sanction, had the sanction not been an ongoing sanction. (c) In the case of a repeat violation, an amount equal to one-half of the amount of monetary sanction that was permitted to be imposed in respect of the sanction, had the violation been a first-time violation, will be added; For this purpose, "repeat violation" a violation of a provision of this Law as stated in the First Addendum, within two years of a previous violation of the same provision in respect of which the ISA imposed a monetary sanction under this chapter, or in respect of which the administrative enforcement committee imposed enforcement means under chapter H on the offender. Reduced amounts 29. (a) The ISA may not impose a monetary sanction of an amount lower than the amounts listed in the Second Addendum, other than pursuant to the provisions of subparagraph (b). (b) The Minister, with the consent of the Minister of Justice and approval of the Knesset Economic Affairs Committee, may define cases, circumstances, and considerations, in respect of which it is permissible to reduce the amount of the monetary sanction listed in the Second Addendum, at rates determined by the Minister. Revised amount of the monetary sanction 30.

13 Payment date of monetary sanction (a) The monetary sanction will be according to the revised amount on the delivery date of the demand for payment; If an appeal is filed against the demand for payment and the payment of the monetary sanction is deferred under section 35, the monetary sanction will be according to the revised amount on the date the ISA agrees to defer the payment or on the date on which a court orders the deferral of the payment, as stated in section 35. For the purpose of this subparagraph, revised amount the amount of the monetary sanction including any additional amount in respect of an ongoing violation, pursuant to section 28, revised according to subparagraph (b). (b) If the change in the index from the last index published before January 1 of a specific year (in this subparagraph the revision date) compared to the index of January 2014, or the index on the most recent date of a revision performed according to this subparagraph, the later of the two dates, exceeds 20 percent, the chairperson of the ISA may revise the amounts of the monetary sanctions defined in the Second Addendum, on the revision date, and round out said amounts to the nearest amount that is a multiple of 100 new Israeli shekels; For this purpose, index the Consumer Price Index published by the Central Bureau of Statistics. (c) The ISA shall publish a notice of the revised amounts of monetary sanctions pursuant to subparagraph (b) in Reshumot. 31. A monetary sanction shall be paid within 45 days from the delivery date of demand for payment, as stated in section 27(b)(1). Payment of monetary sanction in installments 32. (a) The ISA may, at the request of an offender, decide to divide the payment of the monetary sanction into several installments, even if it has decided to reduce the monetary sanction according to section 29(b), provided that the number of installments does not exceed ten monthly installments. (b) The monthly payment as stated in subparagraph (a) shall be updated to the payment date, with the addition of linkage and interest differences according to the Adjudicating Interest and Linkage Law (in this chapter linkage and interest differences); If the offender fails to pay any monthly installment in a timely manner, the ISA s decision to divide the payment into installments, as stated in subparagraph (a), shall be deemed void, and the provisions of section 33 shall apply to the outstanding balance of the monetary sanction. Interest and linkage differences Collection 33. If the offender fails to pay a monetary sanction in a timely manner, linkage and interest differences shall be added to it, for the period in arrears until payment. 34. Monetary sanctions shall be collected by the state treasury, and the Tax Ordinance (Collection) 10 shall apply to the collection thereof. 9 Sefer HaHukim (Book of Laws) 5721, p Laws of Land of Israel, Volume B., p. (p) 1374, (a) 1399.

14 Deferral and refund of payments 35. (a) An appeal filed against a demand for payment according to this chapter does not defer payment of the monetary sanction or publication of the decision or filing of an immediate report under section 36(F), unless so approved by the ISA or unless so ordered by the court. (b) If an appeal as stated in subparagraph (a) was accepted after the monetary sanction was paid, the monetary sanction shall be refunded, including linkage and interest differences from the payment date to the refund date. Immediate reporting and publication of the demand for payment 36. (a) If an offender receives a demand for payment, the ISA shall publish the following information on its website and in any additional manner as it so decides, as a means of ensuring transparency of its discretion in deciding to impose a monetary sanction: (1) The imposition of the monetary sanction; (2) The nature of the violation in respect of which the monetary sanction was imposed, and the circumstances of the violation; (3) The amount of the monetary sanction imposed; (4) If the amount of the monetary sanction was reduced the circumstances in respect of which it was reduced and the amount reduced; (5) Relevant information on the offender; (6) Identifying information on the offender, if the offender is a corporation. (b) If an appeal was filed against the monetary sanction, the ISA shall publish the fact of the appeal and its results in the manner used to publish information on the imposition of the monetary sanction; If the court decides that no violation was committed, the ISA may, at the offender s request if the offender is an individual, delete all published information on this matter. (c) Notwithstanding the provisions of subparagraph (a)(6), the ISA may publish identifying information of the offender, if the offender is an individual, after having granted him an opportunity to present his arguments in this matter, if the ISA believes that such publication is necessary to alert the investor public for the protection of its interests. (d) Notwithstanding the provisions of this section, the ISA shall not publish information prohibited for publication by any public agency under section 9(a) of the Law of Freedom of Information , 11 and it may refrain, under this section, from publishing any information that constitutes information that no public agency is obligated to disclose according to section 9(b) of the aforementioned law. (e) Publications on the ISA website, as stated in subparagraph (a)(6), shall be for a period of four years, or two years for publications according to subparagraph (c); The Minister, in consultation with the Minister of Justice and with the approval of the Knesset Economic Affairs Committee, shall issue instructions concerning measures to prevent, as far as possible, access to information so published, after the elapse of the aforesaid publication period; If no such regulations are enacted, the ISA may not publish said information on the website. 11 Sefer HaHukim (Book of Laws) 5758, p. 226.

15 (f) If a demand for payment is delivered to a credit rating company, a controlling shareholder or a senior officer thereof, the credit rating company shall publish an immediate report regarding the demand for payment, including the information stated in subparagraph (a), in the manner set forth in the provisions of section 52. The chairperson of the ISA shall exempt the credit rating company from the requirement to make said publication, at its request, if he deems that such exemption has no adverse impact on the investor public. Monetary sanction and administrative enforcement proceeding 37. If a demand for payment was delivered to the offender according to this chapter, no enquiry of the violation or administrative enforcement proceeding shall be initiated, according to chapter H, in respect of the act in respect of which the demand for payment was delivered. Amendment to the First Addendum and the Second Addendum 38. (a) The Minister, at the suggestion of or in consultation with the ISA, with the consent of the Minister of Justice and approval of the Knesset Economic Affairs Committee, may, by a ministerial order, modify the First Addendum and the Second Addendum, provided that the amount of the monetary sanction determined in the Second Addendum does not exceed 1,000,000 new Israeli shekels for a corporation, and 100,000 new Israeli shekels for an individual. (b) The provisions of section 30(b) and (c) shall apply, mutatis mutandis, to the matter of the amounts stated in subparagraph (a). Chapter H: Imposing administrative enforcement measures by the administrative enforcement committee Definitions 39. In this chapter the committee the administrative enforcement committee appointed according to section 52(FF)(a) of the Securities Law; violation a violation of a provision of this Law, as stated in the Third Addendum. Application of provisions concerning the enquiry of violations and administrative enforcement procedures 40. If an individual committed a violation, the provisions of chapter H.4 of the Securities Law, which apply to the matter of an offender and a violation of the provision listed in Part C of the Seventh Addendum to the aforementioned law, shall apply to the violator and the violation, mutatis mutandis, although the committee may impose on the violator a monetary sanction of a maximum amount, as stated hereinafter, according to the matter: (1) In the matter of an offender who is an individual who works in a credit rating company but is not a senior officer thereof 20,000 new Israeli shekels; (2) In the matter of an offender who is any other individual 750,000 new Israeli shekels; (3) In the matter of an offender who is a credit rating company 5,000,000 new Israeli shekels. Liability of the general manager of the credit rating company

16 41. (a) The general manager of a credit rating company must supervise and take all the reasonable measures under the circumstances of a case to prevent commission of a violation by the credit rating company or by any employee thereof. (b) If a violation was committed by the credit rating company or by any employee thereof, the general manager of the credit rating company is deemed to have violated his duty according to subparagraph (a), and shall be deemed to have committed a violation of a provision listed in the Third Addendum, however, no enforcement measures that might have been imposed on him had he been the violator, may be imposed on him, other than one or more of the enforcement measures listed below, according to the matter: (1) A monetary sanction as stated in section 40, the maximum amount of which shall not exceed one half of the maximum amount of the monetary sanction that might have been imposed on an offender who is another individual, in respect of the same violation; (2) Prohibition to serve as a senior officer in a supervised entity, as stated in section 52(DDD) of the Securities Law, for a period not to exceed one half of the period of prohibition to serve, which might have been imposed on an offender according to the same section. (c) If the general manager of the credit rating company proves that he fulfilled his duty according to subparagraph (a), the presumption stated in subparagraph (b) shall not apply on him. (d) If a credit rating company determined adequate procedures to prevent a violation as stated in subparagraph (b), including with respect to instructing the corporation s employees to follow said procedures, appointed a Compliance Officer according to section 10, and taken reasonable steps to rectify a violation and prevent its recurrence, the general manager shall be deemed to have fulfilled his duty as stated in subparagraph (a). Amendment to the Third Addendum 42. The Minister, at the suggestion of or in consultation with the ISA, with the consent of the Minister of Justice and with approval of the Knesset Economic Affairs Committee, may, by ministerial order, amend the Third Addendum. Powers of the chairperson of the ISA to enter into arrangements to prevent the initiation of proceedings or to conclude proceedings, subject to conditions 43. (a) The authority vested in the chairperson of the ISA to enter into arrangements to prevent the initiation of proceedings or to conclude proceedings, as the case may be, subject to conditions, pursuant to the provisions of chapter I.1 of the Securities Law, shall be vested in him for the matter of violations, and the provisions of the aforesaid chapter shall apply to this matter, mutatis mutandis. (b) In this section, proceedings a violation enquiry proceeding or an administrative enforcement proceeding, according to chapter H.4 of the Securities Law, as applied in section 40. Limitation on civil liability of a credit rating company 44. Chapter I: Civil Liability

17 Confidentiality and use of information 45. (a) Notwithstanding the provisions of any law, a credit rating company that performed its duties in good faith shall not be liable by the force of that law toward any investor for any damage caused to him as a result of a rating process or the rating, unless the investor proves that the credit rating company acted with gross negligence in the rating process according to chapter D or in determining the rating. For this purpose, investor an investor in a financial instrument in respect of which a rating was determined, or in a financial instrument of a rated corporation. (b) Notwithstanding the provisions of subparagraph (a), if a provision concerning liability according to that subparagraph is determined in an agreement, a public offering document, or any other commitment that is made public, which applies more stringent restrictions to the credit rating company, the provision determined in the said agreement, the document, or commitment shall apply in this matter, provided that it was determined with the consent of the credit rating company; In the matter of an investor who is a controlling shareholder, even a more lenient provision shall apply, if determined with any said agreement, document, or commitment with him. (c) A credit rating company is deemed to have failed to act in good faith, if it violated a provision of chapter E, either in the rating process or in determining the rating, as stated in subparagraph (a). (d) The statute of limitations for an action due to damage as stated in subparagraph (a) in respect of which no complaint was filed, is four years. Chapter J: Miscellaneous Provisions (a) A credit rating company and its employees shall not disclose information that is not known to the public concerning a rated corporation, a financial instrument in respect of which a rating is determined, or the rating process. (b) A credit rating company and its employees shall make no use of the information stated in subparagraph (a) other than for rating activities. (c) The Minister, at the suggestion of or in consultation with the ISA, with the approval of the Knesset Economic Affairs Committee, may issue instructions concerning the manner in which the information stated in subparagraph (a) is maintained. Manner of reporting by credit rating companies 46. Any document that a credit rating company is required to file with the ISA or publish to the public, shall be made filed in the manner determined according to chapter G.1 of the Securities Law. Delivery of documents from the ISA using secured electronic mail 47. The provisions of chapter G.2 of the Securities Law, mutatis mutandis, shall apply to all notices, instructions, demands, and other documents that the ISA or any employee authorized for this purpose may issue according to this Law to a credit rating company or to whoever files an application for registration of a credit rating company. Determining procedures for the activity of a credit rating company 48. A credit rating company shall determine procedures in all material matters concerning its activity, and shall take steps to implement them. Without derogating from the

18 Financing a class action by the ISA generality of the above, the Minister, at the suggestion of or in consultation with the ISA, and with the approval of the Knesset Economic Affairs Committee, may determine matters in which the company is required to determine such procedures. 49. The provisions of section 55C of the Securities Law shall apply to the matter of class actions against a credit rating company according to the provisions of the Law of Class Actions , 12 on any legal grounds stemming from rating. Prohibition on indemnification and insurance Fees 50. (a) Notwithstanding the provisions of any law and without derogating from the provisions of sections 262 through 264 of the Companies Law (1) No proceeding under chapters G or H may be insured, either directly or indirectly (in this section a proceeding); (2) Any contract to insure an insurance event that is a proceeding is void; (3) No corporation shall indemnify or pay, either directly or indirectly, any monetary sanction imposed on another party, and no controlling shareholder of a corporation shall indemnify or pay, either directly or indirectly, any monetary sanction imposed on the corporation, a senior officer or employee thereof; (4) Any provision or commitment to indemnify in respect of a proceeding is void. (b) (1) Notwithstanding the provisions of subparagraph (a), a person may be indemnified or insured, including indemnification in advance, in respect of a payment made to a party injured by a violation as stated in section 52(BBB)(a)(1)(a) of the Securities Law, or due to expenses he incurred regarding a proceeding in his matter, including reasonable litigation costs and attorney fees. (2) Any undertaking to indemnify or insure a senior officer in a corporation under paragraph (1) shall have no effect unless such undertaking is permitted by the credit rating company s articles of association. 51. The Minister, in consultation with the ISA and with the approval of the Knesset Economic Affairs Committee, may determine fees for applicants and rating companies, and provisions regarding the linkage and interest differences payable in respect of a delay in payment of fees according to this section, and concerning the application of the Tax Ordinance (Collection) on the collection of said fees and linkage and interest differences. Execution and regulations 52. (a) The Minister is in charge of the execution of this Law and he may, at the suggestion of or in consultation with the ISA, and with the approval of the Knesset Economic Affairs Committee, enact regulations concerning its execution, including in these matters: (1) Recording and documentation of the rating process; (2) Publication of the ratings and the assessment methodologies; (3) Due disclosure and reporting to the ISA, clients, and the public; Such provisions shall address, among other things, the manner and content of the disclosure, the information on the basis of which the rating was determined, the assessment 12 Sefer HaHukim (Book of Laws) 5766, p. 264.

19 Publication in Reshumot 53. methodology, and consent to include the rating in the reports of a rated corporation or in its public offer documents; (4) Retention of documents; (b) In the regulations according to subparagraph (a), the Minister may issue different instructions for different types of credit rating companies or different classes of financial instruments. (a) There is no obligation to publish instructions issued by the ISA or the chairperson of the ISA according to this Law in Reshumot. However, the ISA shall publish in Reshumot a notice that said instructions were issued and their application date. (b) Instructions according to subparagraph (a) and any modification to them shall be made available for public perusal at ISA offices and shall be published on the ISA website, and the ISA may order additional modes of their publication. Exemption and restriction on the scope of the provisions of the law 54. Amendment No. 56 to the Securities Law (a) The provisions of this Law shall not apply to these ratings: (1) Ratings prepared for the internal needs of the rater and not made public; (2) Ratings prepared by an institutional entity as defined in the Supervision of Financial Services (Insurance) Law , for its own internal needs, provided that the Commissioner of Capital Market, Insurance, and Savings at the Ministry of Finance (hereinafter, the Commissioner of the Capital Market) approved the rating model; In this subparagraph, internal needs including ratings prepared for the purpose of credit that was or will be jointly granted in the future by several entities, provided that the rater is one of the credit granters, and including ratings transferred between banking corporation and corporations in its control for the purpose of credit risk management at a group level. (b) Notwithstanding the provisions of subparagraph (a), the Minister, in consultation with the ISA and with the approval of the Knesset Economic Affairs Committee, may determine that the provisions of this Law shall apply to ratings as stated in that subparagraph; A determination concerning ratings prepared for internal needs by corporations that are also subject to the supervision of the Commissioner of Banks, shall also be made in consultation with the Governor of the Bank of Israel. (c) If the Minister believes that such exemption does not adversely affect the interests of the investor public, he may, at the suggestion of or in consultation with the ISA and with approval of the Knesset Economic Affairs Committee, exempt companies engaged in rating from the provisions of this Law, either in entirety or in part, due to, among other reasons, (1) The scope of the company s operation, the classes of financial instruments that it rates, and the number or type of holders of said financial instruments; (2) Other provisions of law or provisions of foreign law that apply to the company, either directly or indirectly; In this section, foreign law includes rules determined in this matter by statute in another country.

20 55. In the Securities Law (1) In section 23A (d)(1), instead of made by a company that engages in this, determined by the Minister of Finance, is as he determined, the following shall be inserted "as defined in the Regulation of Activity of Credit Rating Companies Law (in this law the Rating Law) is as determined by the Minister of Finance ; (2) In section 52DDD(a), the following shall be inserted after subparagraph (5): (6) a credit rating company as defined in the Rating Law. Amendment No. 21 to Regulation of Investment Advice, Investment Marketing, and Investment Portfolio Management Law In the Regulation of Investment Advice, Investment Marketing, and Investment Portfolio Management Law , 15 the following shall be inserted in section 3(a), after subparagraph (12): (13) rating as defined in the Regulation of Activity of Credit Rating Companies Law Amendment No. 24 to the Companies Law 57. In the Third Addendum to the Companies Law , 17 item 1, definition of rating, instead of a credit rating company approved by the Commissioner of Capital Market, Insurance, and Savings at the Ministry of Finance the following shall be inserted: a credit rating company as defined in the Regulation of Activity of Credit Rating Companies Law Amendment No. 7 to the Class Action Law 58. In the Second Addendum to the Law of Class Actions , 19 the following shall be inserted after item (13): (14) A complaint of a holder of shares or means of control in a rated corporation, or a holder of a financial instrument in respect of which a rating was determined, against a credit rating company, for any legal cause of action stemming from rating. For this purpose, rated corporation, financial instrument, rating, and credit rating company as defined in the Regulation of Activity of Credit Rating Companies Law Application and transition provisions 59. (a) This Law, excluding section 49, enters into effect on the date that regulations according to sections 3(b), 4(3), 45(c) and 52 enter into effect (hereinafter, the "application date"); However, in the matter of a company certified as a credit rating company by the Commissioner of the Capital Market prior to the application date, the provisions of this Law shall apply after the elapse of one year from the application date. 13 Sefer HaHukim (Book of Laws) 5728, p. 234; 5774, p Sefer HaHukim (Book of Laws) 5774, p Sefer HaHukim (Book of Laws) 5745, p. 416; 5774, p Sefer HaHukim (Book of Laws) 5774, p Sefer HaHukim (Book of Laws) 5759, p. 189; 5774, p Sefer HaHukim (Book of Laws) 5774, p Sefer HaHukim (Book of Laws) 5766, p. 264; 5771, p Sefer HaHukim (Book of Laws) 5774, p. 418.