Banks Act, 1990 (Act No. 94 of 1990)RegulationsRegulations relating to BanksChapter III : Corporate Governance51. Eligible institutions |
| (1) | An— |
| (a) | external credit assessment institution; or |
| (b) | export credit agency, |
that wishes to be recognised as an eligible institution for purposes of the Act and these Regulations shall obtain the prior written approval of the Authority and shall comply with such additional requirements as may be specified in writing by the Authority.
| (2) | The Authority shall not grant approval as envisaged in subregulation (1) unless, as a minimum— |
| (a) | the relevant external credit assessment institution complies with all the respective requirements specified below: |
| (i) | Objectivity |
The methodology in terms of which the external credit assessment institution assigns credit assessments in respect of each relevant market segment, asset class, instrument or exposure—
| (A) | shall be well established for such a minimum period as may be specified in writing by the Authority, which minimum period shall in no case be less than one year; |
| (B) | shall be rigorous; |
| (C) | shall be systematic; |
| (D) | shall be based on an appropriate combination of qualitative and quantitative approaches and elements; |
| (E) | shall be subject to— |
| (i) | appropriate validation based on historical experience; |
| (ii) | ongoing review; and |
| (iii) | rigorous backtesting; |
| (F) | shall be sufficiently robust to ensure that all relevant external ratings issued by the external credit assessment institution— |
| (i) | are subject to ongoing review; and |
| (ii) | are appropriately responsive to changes in financial condition or exposure to a risk of loss. |
| (ii) | Independence |
The external credit assessment institution shall be independent in the sense, for example—
| (A) | that the institution is free from any political or economic pressure that may influence a particular rating. |
As such, the external credit assessment institution shall not delay or refrain from taking a rating decision or action based upon, for example, its potential economic or political effect.
| (B) | that the composition of the board of directors or the shareholder structure of the external credit assessment institution and the institution, entity, asset or instrument to be assessed, and the processes related thereto do not create any actual or potential conflict of interest; |
| (C) | that the external credit assessment institution’s relevant rating business and the processes related thereto are operationally, legally and, if practicable, physically, appropriately separated from the external credit assessment institution’s other businesses, processes and analysts. |
| (iii) | International access |
Individual assessments issued by the external credit assessment institution as well as the key elements underlying the assessments and whether the relevant issuer participated in the assessment process shall be publicly available on a non-selective basis, provided that—
| (A) | in the case of a private assessment— |
| (i) | the Authority may, subject to conditions specified by the Authority in writing, allow a deviation from the aforesaid requirements; but |
| (ii) | the relevant assessment shall in all such cases at least be available to both domestic and foreign institutions with a legitimate interest in the assessment, and on equivalent terms; |
and
| (B) | in all relevant cases, the general procedures, respective methodologies and assumptions for arriving at the relevant assessments, used by the external credit assessment institution, shall be publicly available. |
| (iv) | Disclosure |
As a minimum, an external credit assessment institution shall publicly disclose—
| (A) | its code of conduct; |
| (B) | the general nature of the compensation arrangements between the external credit assessment institution and the relevant assessed or to be assessed entities or institutions, obligors, lead underwriters or arrangers; |
In this regard—
| (i) | when the external credit assessment institution receives from a rated entity, obligor, originator, lead underwriter, or arranger compensation unrelated to its credit rating services, the external credit assessment institution shall disclose in the relevant credit assessment report, or in such other medium or manner as may be specified in writing by the Authority, the relevant amount of such unrelated compensation expressed as a percentage of its total annual compensation received from such rated entity, obligor, lead underwriter or arranger; |
| (ii) | the external credit assessment institution shall disclose in the relevant credit rating report, or in such other medium or manner as may be specified in writing by the Authority, when the external credit assessment institution receives 10 per cent or more of its annual revenue from a single client, such as, for example, from a rated entity, obligor, originator, lead underwriter, arranger or subscriber, or from any affiliate(s) of the aforementioned rated entity, obligor, originator, lead underwriter, arranger or subscriber. |
| (C) | appropriate information related to any conflict or potential conflict of interest |
In this regard the external credit assessment institution shall, as a minimum, disclose sufficiently detailed information related to any of the situations specified below, including their influence or potential influence on the relevant external credit assessment institution’s credit rating methodologies or credit rating actions:
When the external credit assessment institution—
| (i) | is being paid by the rated entity or by the obligor, originator, underwriter, or arranger of the rated obligation, to issue a credit rating; |
| (ii) | is being paid by subscribers with a financial interest that could be affected by a credit rating action of the said external credit assessment institution; |
| (iii) | is being paid by rated entities, obligors, originators, underwriters, arrangers, or subscribers for services other than the issuance of credit ratings or for providing access to the external credit assessment institution’s credit ratings; |
| (iv) | provides a preliminary indication or similar indication of credit quality to an entity, obligor, originator, underwriter, or arranger, prior to being hired to determine the final credit rating for the relevant entity, obligor, originator, underwriter, or arranger; |
| (v) | has a direct or indirect ownership interest in a rated entity or obligor, or a rated entity or obligor has a direct or indirect ownership interest in the external credit assessment institution. |
| (D) | the assessment methodologies used by the said external credit assessment institution, including— |
| (i) | the definition of default; |
| (ii) | the time horizon used in the rating process; |
| (iii) | the meaning of each relevant assessment or rating; |
| (iv) | in plain and simple language, the nature and limitation of credit ratings, and the risk of persons unduly relying on ratings, for example, to make investment decisions; |
| (E) | the actual default rates experienced in each relevant assessment category; |
| (F) | all relevant assessments or ratings as soon as practicably possible after issuance; |
| (G) | the transitions relating to the various assessments or ratings, that is, the likelihood of a AA rating, for example, becoming an A rating over time. |
| (v) | Resources |
An external credit assessment institution shall have sufficient resources—
| (A) | to conduct high quality credit assessments, which assessments shall be based on methodologies appropriately combining qualitative and quantitative approaches and elements; |
| (B) | to ensure that the external credit assessment institution is able to assign analysts with appropriate knowledge and experience to assess the creditworthiness of the type of entity or obligation being rated; |
| (C) | to allow for substantial ongoing contact with relevant personnel at senior and operational levels within the assessed institutions or entities. |
| (vi) | Credibility |
| (A) | As a minimum, the credibility of an external credit assessment institution shall be evidenced by factors such as, for example— |
| (i) | the reliance being placed on the external credit assessment institution’s external credit assessments by independent persons or parties, such as investors or insurers; |
| (ii) | the existence of comprehensive and duly documented internal policies and procedures to prevent the abuse or inappropriate use of any confidential information, |
| (B) | An external credit assessment institution shall in no case use unsolicited ratings as a means to put pressure on an institution or entity to obtain solicited ratings. |
Provided that—
| (i) | none of the requirements specified in this paragraph (a) shall be construed to mean that an external credit assessment institution has to assess institutions, entities or instruments in more than one country or jurisdiction before being in a position to submit an application for approval as an eligible institution; |
| (ii) | should the Authority grant approval for an external credit assessment institution to be recognised as an eligible institution for purposes of the Act and the Regulations, the said external credit assessment institution shall notify the Authority in writing of any significant changes to methodologies and provide access to external ratings and other relevant data in order to support the external credit assessment institution’s initial and continued determination of eligibility. |
(b) the relevant export credit agency—
| (i) | publishes its risk scores; |
| (ii) | subscribes to any relevant OECD agreed methodology to assign country risk scores, which methodology currently establishes eight risk score categories associated with minimum export insurance premiums. |
[Regulation 51 substituted by section 8 of Notice 6342, GG52907, dated 26 June 2025, shall come into operation on 1 July 2025]