Changes in CRA's shareholdings resulting in more than 20% control require SC approval

KUALA LUMPUR: The Securities Commission Malaysia (SC) has clarified that any change of shareholdings that resulted in a person controlling 20 per cent or more of the paid-up capital of a credit rating agency (CRA) required the prior approval of the capital market regulator.

Commenting on recent news reports on possible changes to the shareholding of RAM Holdings Bhd (RAM), it said SC’s prior 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.

"Both requirements are prescribed under the CRA Guidelines,” it said in a statement today.

It said in evaluating such applications, the SC considered, among others, the value proposition proposed by applicants, vis-a-vis the increasingly 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,” it said.

However, it said given the critical role CRAs played in providing credible credit rating opinions, the independence and objectivity of CRAs’ credit assessment process and rating decisions should never be compromised.

It said to ensure this, the SC’s CRA Guidelines have set out the obligations that a CRA must continuously comply with, which include subjecting the appointment of CRAs’ board members and chief executive officers (CEOs) 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 chair of the rating committee must be a qualified and independent member,” it said.

The SC said it would continue to take proactive measures to strengthen rating independence and objectivity and where required, impose additional conditions on approvals given to applicants.

It said as such, the SC is reviewing the existing framework, including on rating committees and their composition.

Going forward, it said it intended 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 and for any decision to provide dividends to shareholders to require the SC’s prior approval.

It added that this is to ensure the CRA continues to operate with sufficient resources to sustain its rating operations.

To date, the SC has given approval to more than one applicant to hold more than 20 per cent shareholding in a CRA. - Bernama