The Monetary Board has approved the rules and regulations that shall govern the recognition and derecognition of domestic credit rating agencies for bank supervisory purposes. The forthcoming circular aims to ensure that the quality of ratings and the reliance of regulators as well as of industry players on credit ratings are well placed.
The circular prescribes that an applicant-rating agency will be recognized by the BSP upon satisfaction of the minimum eligibility criteria, which include among others; objectivity, independence, transparency, credibility and compliance with internal procedures and certain disclosure requirements.
While there is no required minimum capital, credit rating agencies should have the financial capability to invest in the necessary technological infrastructure and employ sufficient professional analytical staff to ensure proper discharge of their duties and responsibilities.
The circular also requires existing credit rating agencies to have a track record of at least 5 years in the issuance of reliable and credible ratings. In the case of new entrants, a probationary status may be granted on the condition that they employ professional analytical staff with sufficient experience in the credit rating business.
The issuance of the circular was prompted by the introduction in the financial market of new and innovative products, which require ratings and in anticipation of the law on securitization as well as reforms being introduced in the managed funds business.