Credit rating firms face tighter accreditation

MANILA, Philippines – The Securities and Exchange Commission (SEC) plans to overhaul the rules governing credit rating agencies (CRAs), as it moves to strengthen investor protection and support development of the country’s corporate bond market.

In a consultation paper released for public comment until July 24, the SEC drafted a memorandum circular to amend Rule 39.1.5 of the 2015 Implementing Rules and Regulations of the Securities Regulation Code.

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“The strengthened regulatory framework introduces rigorous oversight across key operational areas, including accreditation requirements, corporate governance, analyst competence and independence, the integrity of the credit rating process, transparency and reporting obligations and the development and application of rating methodologies,” the SEC said.

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According to the SEC, the changes are intended to foster greater confidence in credit ratings among both institutional and retail investors, helping broaden participation in the corporate bond market and deepen the capital markets.

Under the proposal, accreditation will become a stricter gatekeeping mechanism, requiring applicants to demonstrate they have adequate financial resources, governance structures, qualified personnel, rating methodologies and systems.

Accredited agencies will also be required to continuously comply with these standards.

The draft rules also propose higher capital requirements, requiring CRAs to maintain at least P50 million in capital upon accreditation, rising to P70 million three years later.

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The SEC said this would help ensure financial resilience and enable agencies to invest in staff, systems and analytical capabilities.

To strengthen independence, the proposal requires the majority of the board of any CRA, including its chair, to be independent directors.

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It also expands “fit and proper” requirements to cover controllers, directors, senior management, compliance officers and rating analysts, while imposing stricter safeguards against conflicts of interest.

The proposed framework further requires the separation of business development and analytical functions, introduces mandatory lead analyst rotation, strengthens rating committee independence and expands reporting and disclosure obligations.

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CRAs will also have to publish greater information on their governance, methodologies and historical rating performance to improve market transparency.

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The SEC said the revisions drew from international standards and regulatory practices adopted in jurisdictions such as the European Union, the United States, Malaysia and India, while aligning with the International Organization of Securities Commissions Principles and Methodology for CRAs. INQ