Starting next year, when a credit rating agency withdraws or suspends a specific corporation's credit rating, it will be required to disclose it as soon as it becomes aware of the fact. The rules also further strengthen internal controls by mandating the retention of minutes capturing the deliberations of the credit rating committee and by completely blocking employees in sales departments from accessing undisclosed internal evaluation materials.
According to the financial investment industry on the 16th, the Korea Financial Investment Association has announced a revision to the "standard internal control standards for credit rating companies" to bolster objectivity and fairness in credit rating work. The revision is scheduled to be submitted to and approved by the association's committee on Jan. 15 next year, and to take effect in earnest on Aug. 1.
The crux of the revision is focused on enhancing transparency in the evaluation process and preventing conflicts of interest. Key points include: ▲ improving the thoroughness of written credit rating opinions ▲ strengthening the operation of the credit rating committee and retention of minutes ▲ introducing an immediate disclosure requirement when post-rating monitoring is halted ▲ reinforcing the "Chinese wall" to limit information and personnel exchanges between evaluation and sales organizations ▲ extending the retention period for credit rating materials.
In particular, once the revision takes effect, if a credit rating company can no longer continue post-rating monitoring because grounds arise to withdraw or suspend a specific corporation's credit rating, it must disclose the fact without delay upon becoming aware of it.
Provisions related to the operation of the credit rating committee were also strengthened. Changes made based on the committee's deliberation results must be recorded and retained in minutes. The minutes must also include the main opinions submitted and the matters decided.
Items on separating the evaluation organization from the sales organization will be made more specific. A new provision was added to ensure that employees in sales departments do not have access rights to undisclosed internal evaluation materials.
The standard internal control standards for credit rating companies were established in response to the recognition that one of the main causes of the 2009 global financial crisis stemmed from deficiencies in credit ratings. The Financial Supervisory Service originally oversaw enactment and related management, but in 2021 the authority to enact was shifted to the association.
An official at the association said, "It has been a long time since the standard internal control standards for credit rating companies were created without being overhauled, so we decided to update them," and added, "We gathered opinions from four credit rating agencies, and since there are issues such as developing IT systems, we decided to implement the changes starting in August next year."