Some interesting / important excerpts from South Africa’s draft bill for credit rating agencies:
General duties
7.(1) A credit rating agency must – …
(j) ensure that it at all times has the necessary knowledge and experience to issue credit ratings and perform its credit rating services;
Methodologies, models and key rating assumptions
9. A credit rating agency must -
(a) adopt, implement and enforce adequate measures to ensure that the credit ratings it issues are based on a thorough analysis of all the information that is available to it and that is relevant to its analysis according to its rating methodologies;
(b) use rating methodologies that are rigorous, systematic, continuous and subject to validation based on historical experience, including backtesting;
(c) regularly review its methodologies, models and key rating assumptions such as mathematical or correlation assumptions, any significant changes or modifications to them and the appropriateness of those methodologies, models and key rating assumptions where they are used or intended to be used for the assessment of new financial instruments; and
(d) establish internal arrangements to monitor the impact of changes in macroeconomic or financial market conditions on credit ratings.
Credit ratings
10.(1) A credit rating agency must –
(b) when publishing a credit rating –
(i) state clearly and prominently any attributes and limitations of the credit rating; and
(ii) provide an explanation of the key elements underlying the credit rating that an investor, potential investor or a member of the public, as the case may be, are able to understand how a rating was arrived; and
(c) monitor credit ratings and regularly review its credit ratings.
10.(4) A credit rating agency must refrain from issuing a credit rating or withdraw an existing rating if the lack of reliable data, the complexity of a financial instrument or the quality of information available cannot result in a credible credit rating.
Disclosures
13.(2) A credit rating agency must, every six months, disclose to the public and its subscribers data about the historical default rates of its rating categories.
Posted on August 4, 2011
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