This content is from: Local Insights

Tighter leash on Singapore credit rating agencies

Gerald CheongElena Ng

The future of credit rating agencies (CRAs) in Singapore took a twist on January 17 2012 when the Monetary Authority of Singapore (MAS) released a new regulatory framework for credit rating agencies.

The new regulatory framework has been designed to enable CRAs to better meet the ever-changing demands of regulatory reporting, in particular as their role is coming under the spotlight amidst growing concerns about the global market crisis.

This latest approach, following similar moves undertaken by the United States and Hong Kong, has included several significant key changes to the rules which may, to some extent, result in knock-on effects on the existing CRAs.

Under the new regulatory framework, providing credit rating services is a regulated activity under the Securities and Futures Act. CRAs will need to be licensed under the Capital Markets Services (CMS) licensing regime under the Act and be subject to licensing obligations. In view of that, the definition of the scope of "providing credit rating services" in the second schedule of the Act has been amended.

The new regulatory framework further requires CMS licensees providing credit rating services to appoint and register under the Representative Notification Framework any individual who acts as their representative in providing credit rating services.

All existing CRAs will be given six months from January 17 2012 to comply with the requisite requirements in obtaining the CMS licence. To obtain the licence, existing CRAs must meet and maintain a minimum base capital of S$250,000 ($197,000) and comply with the Securities and Futures (Financial and Margin Requirements for Capital Markets Services Licenses) Regulations.

Simultaneously, a Code of Conduct for CRAs has also been issued by the MAS pursuant to section 321 of the Securities and Futures Act. The Code, effective from January 17 2012, applies to CMS licensees providing credit-rating services and, where appropriate, to their representatives and employees. Though it is not legally binding, all CRAs are encouraged to adhere to the Code as compliance will be one of the determining factors for the MAS to grant, extend, revoke or suspend a CRA licence under section 95 of the Act.

These efforts and actions taken by the MAS have been seen as a move to tighten the regulations in the financial services market amid the global market mayhem triggered by the rating action in the United States. A statement by the MAS emphasized that "such move is necessary to further supervise CRAs to enhance the quality of ratings, safeguard the integrity of the rating process, and promote CRAs' independence and the avoidance of conflicts of interest."

Further details on the new regulatory framework and the Code for CRAs is available on the official website of the MAS: http://www.mas.gov.sg

Elena Ng and Gerald Cheong

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