14.2.1. Principle 1 ‐ Quality and integrity of the rating process

Credit Rating Agencies should endeavour to issue opinions that help to reduce the asymmetry of information among borrowers and lenders and Centre Participants more generally.

Guidance: Processes to ensure quality and integrity When issuing opinions, a Credit Rating Agency should consider adopting the following processes:

• (a) Credit Rating Agencies should adopt and implement written procedures and methodologies to ensure that the opinions they issue are based on a fair and thorough analysis of all relevant information available to the Credit Rating Agency, and that their analysts perform their duties with integrity. Credit Rating Agency rating methodologies should be rigorous, systematic, and Credit Rating Agency ratings should be subject to some form of validation based on historical experience.
• (b) Credit Rating Agencies should monitor on an ongoing basis and regularly update an analysis and rating once a rating is issued whenever new information becomes available that causes the Credit Rating Agency to revise or terminate its opinion.
• (c) Credit Rating Agencies should maintain internal records to support their ratings.
• (d) Credit Rating Agencies should have sufficient resources to carry out high-quality credit assessments.
• (e) They should have sufficient personnel to properly assess the entities they rate, seek out information they need in order to make an assessment, and analyse all the information relevant to their decision-making processes.
• (f) Analysts employed by Credit Rating Agencies should use the methodologies established by the Credit Rating Agency and be professional, competent, and of high integrity.

14.2.2. Principle 2 – Independence and conflicts of interests

Credit Rating Agency ratings decisions should be independent and free from political or economic pressures and from conflicts of interests arising due to the Credit Rating Agency's ownership structure, business or financial activities, or the financial interests of the Credit Rating Agency's employees. Credit Rating Agencies should, as far as possible, avoid activities, procedures or relationships that may compromise or appear to compromise the independence and objectivity of the credit rating operations.

Guidance: Processes to ensure independence and reduce conflicts of interest A Credit Rating Agency should consider adopting the following processes:

• (a) Credit Rating Agencies should adopt written internal procedures and mechanisms to

(1) identify, and (2) eliminate, or manage and disclose, as appropriate, any actual or potential conflicts of interest that may influence the opinions and analyses Credit Rating Agencies make or the judgment and analyses of the individuals the Credit Rating Agencies employ who have an influence on ratings decisions. Credit Rating Agencies are encouraged to disclose such conflict avoidance and management measures.

• (b) The credit rating a Credit Rating Agency assigns to an issuer should not be affected by the existence of or potential for a business relationship between the Credit Rating Agency (or its affiliates) and the issuer or any other party.
• (c) Credit Rating Agencies and Credit Rating Agency staff should not engage in any securities or derivatives trading presenting inherent conflicts of interest with the Credit Rating Agencies' ratings activities.
• (d) Reporting lines for Credit Rating Agency staff and their compensation arrangements should be structured to eliminate or effectively manage actual and potential conflicts of interest. A Credit Rating Agency analyst should not be compensated or evaluated on the basis of the amount of revenue that a Credit Rating Agency derives from issuers that the analyst rates or with which the analyst regularly interacts.
• (e) The determination of a credit rating should be influenced only by factors relevant to the credit assessment.
• (f) Credit Rating Agencies should disclose the nature of the compensation arrangement that exists with an issuer that the Credit Rating Agency rates.

14.2.3. Principle 3 – Transparency and timeliness of ratings disclosure

Credit Rating Agencies should make disclosure and transparency an objective in their ratings activities. Guidance: Processes to ensure transparency and timeliness

A Credit Rating Agency should consider adopting the following processes:

• (a) Credit Rating Agencies should distribute in a timely manner their ratings decisions regarding publicly issued fixed-income securities or issuers of publicly traded fixedincome securities.
• (b) Credit Rating Agencies should disclose to the public, on a non-selective basis, any rating regarding publicly issued fixed income securities as well as any subsequent decisions to discontinue such a rating if the rating is based in whole or in part on material non public information.
• (c) Credit Rating Agencies should publish sufficient information about their procedures and methodologies so that outside parties can understand how a rating was arrived at by the Credit Rating Agency. This information should include (but not be limited to) the meaning of each rating category and the definition of default and the time horizon the Credit Rating Agency used when making a rating decision.
• (d) Credit Rating Agencies should publish sufficient information about the historical default rates of Credit Rating Agency rating categories and whether the default rates of these categories have changed over time, so that interested parties can understand the historical performance of each category and if and how ratings categories have changed.
• (e) Credit Rating Agencies should disclose if a rating is unsolicited.

14.2.4. Principle 4 – Confidential information

Credit Rating Agencies should maintain in confidence all non-public information communicated to them by any issuer, or its agents, under the terms of a confidentiality agreement or otherwise under a mutual understanding that the information is shared confidentially. Guidance: Processes to ensure confidentiality A Credit Rating Agency should consider adopting the following processes:

• (a) Credit Rating Agencies should adopt procedures and mechanisms to protect the nonpublic nature of information shared with them by issuers under the terms of a confidentiality agreement or otherwise under a mutual understanding that the information is shared confidentially.
• (b) Credit Rating Agencies should use non-public information only for purposes related to their rating activities or otherwise in accordance with their confidentiality agreements with the issuer.