The circular was approved by the Monetary Board which noted that the introduction of new and innovative products into the market had created an increasing demand and reliance on credit rating agencies.
According to BSP Deputy Governor Alberto Reyes, the BSP wanted to make sure that the reliance on these credit agencies would not be misplaced, especially those credit rating agencies for bank supervisory purposes.
Reyes said the BSP circular instituted requirements on the staffing of these agencies as well as strict limitations on allied interests and investor qualifications.
"We’re working towards the international standards and accepted practices set under the Basle Convention," Reyes explained.
Under the circular, the domestic credit rating agency (CRA) would be accredited by the BSP when it has developed a five-year track record in the issuance of reliable and credible ratings.
"In case of new entrants, a probationary status may be granted provided the CRA employs professional analytical staff with experience in the credit rating business," the circular stated.
The BSP rules also set strict qualifications for personnel and staff of the CRA, prohibiting the hiring of directors, officers, members and professional analytical staff convicted of any offense involving moral turpitude or violation of the securities code.
Even involvement as a defendant in any litigation connected with securities laws, according to the BSP, is ground for disqualification. CRAs also required to have the financial and technological capability to ensure speedy acquisition and processing of data as well as timely release of reliable and credible ratings.
According to Reyes, any CRA applying for BSP accreditation and certification is required to have established a rigorous and systematic assessment methodology for at least one year. "But three years is preferable," he said. Reyes said CRAs will also be required to disclose the definition of their ratings.
Reyes said CRAs could be stripped of their accreditation if they are found to be involved in illegal activities such as ratings blackmail, creation of a false market or insider trading, divulging confidential information without prior consent of the client, indulging in unfair competition and such activitites.
Right now, there is only one local ratings agency – Philrating. Reyes said another rating agency is about to be formed by a group of retired officials from various banks.