BSP Governor Rafael Buenaventura said yesterday the accreditation of PhilRating was approved by the Monetary Board, giving banks an option outside of foreign credit rating agencies.
Buenaventura said the MB approval was the first under its new guidelines on credit rating agencies since the BSP began the shift in its regulatory policies towards risk-weighting.
According to Buenaventura, however, it is unlikely that other domestic credit rating agencies will follow because the market is not deep enough to support more than one domestic credit rating company.
"Eventually, when the market develops further, maybe it can support more credit rating companies but for now, the volume of business can only support one," he said.
PhilRating is headed by Renato L. Paras as chairman and Santiago F. Dumlao, Jr. as president. The officers include Edwin B. Villanueva, treasurer; Jaime C. Laya, Alfredo B. Parungao and Carmelita G. Salgado as directors.
To make it easier for PhilRating to qualify, the BSP had earlier decided to set no minimum capital requirement for domestic credit rating agencies, saying that agencies applying for accreditation should only have the technological and professional infrastructure to function as a reliable credit rating body.
According to the BSP it is not necessary to set a minimum capital for credit rating agencies but they should have the financial capability to invest in the necessary technological infrastructure and employ sufficient professional analytical staff to ensure that they could perform their function adequately.
The new circular, according to the BSP, would be the basis for the "recognition and de-recognition" of domestic credit rating agencies for bank supervisory purposes.
"It would ensure that the quality of ratings and the reliance of regulators as well as of industry players on credit ratings are well-placed," the BSP said.
The BSP required applicant agencies to satisfy the minimum eligibility criteria which would include, among other things; objectivity, independence, transparency, credibility and compliance with internal procedures and disclosure requirements.
The BSP also required credit rating agencies to have a five-year track record in the issuance of reliable and credible ratings.
New entrants with no track record, according to the BSP, would be given a probationary status on the condition that they would employ professional analytical staff with sufficient experience in the credit rating business.
According to BSP deputy governor Alberto V. Reyes, the BSP has instituted 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.
The BSP rules also set strict qualification for personnel and staff of the CRA, prohibiting the hiring of directors, officers, members and professional analytical staff convicted of any or all 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 are 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, a CRA applying for BSP accreditation and certification is also 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 would also be required to disclose the definition of their ratings.
Reyes said CRAs could be stripped of their accreditation if they were 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.