KUALA LUMPUR: The Securities Commission Malaysia (SC) is reviewing existing framework to strengthen the independence of credit rating agencies, including on rating committees and their composition.
In a statement, the regulator noted the independence and objectivity of credit rating agencies' credit assessment process and rating decisions should never be compromised given its critical role in providing credible credit rating opinion.
To ensure this, the SC's Credit Rating Agency Guidelines (CRA Guidelines) have set out the obligations that a credit rating agency (CRA) must continuously comply with.
Among the obligations include subjecting the appointment of CRAs' board members and chief executive officers to fit and proper assessment as well as the SC's approval.
"Other requirements include the establishment of a rating committee comprising experienced, qualified and independent members to assign and decide on all credit ratings, thus avoiding board and shareholders involvement in rating discussions and decisions.
"Additionally, the SC said the chair of the rating committee must be a qualified and independent member.
"The SC will continue to take proactive measures to strengthen rating independence and objectivity, and where required, impose additional conditions to approvals given to applicants," it said.
Going forward, the SC intends to make it a requirement for the majority of the board members, at both the holding and rating companies, as well as the rating committee to be independent.
Any decision to provide dividends to shareholders would also need the SC's prior approval to ensure the CRA continues to operate with sufficient resources to sustain its rating operations.
Commenting on recent news reports regarding possible changes to the shareholding of RAM Holdings Bhd (RAM), the regulator clarified that any change of shareholdings that results in a person controlling 20 per cent or more of the paid-up capital of a CRA requires prior approval from the SC.
Its approval is also required for any subsequent cumulative increase in shareholding of 10 per cent or more of the paid-up capital of the CRA.
"In evaluating such applications, the SC considers, among others, the value proposition proposed by applicants, vis-a-vis the increasing competitive environment that CRAs are operating in.
"These include product expansion, business growth and sustainability, regional collaboration, enhancement of skill sets and overall contribution to the development of the local credit rating industry and the Malaysian bond market.
"This is in line with the aims of the Capital Market Masterplans. To date, the SC has given approval to more than one applicant to hold more than 20 per cent shareholding in a CRA," it added.