Minimum capital requirements raised for credit rating firms

The Bangladesh Securities and Exchange Commission (BSEC) has revised a minimum paid-up capital for credit rating companies (CRCs) to a maximum of Tk 5 crore.

The minimum capital requirement was made mandatory for CRCs, it said in the Bangladesh Securities and Exchange Commission Credit Rating Companies Rules, 2022 published in gazette recently.

In the previous rules, the minimum paid up capital for a credit rating company was Tk 50 lakh.

The existing CRCs whose paid-up capital is below Tk 5 crore must fulfill the capital requirement within two years from the effective date of the rules.

As per rules, the CRCs will establish rating methodologies, with due approval of the rating committee, based on standards and procedures to meet the rating requirements for each industry or each type of financial instrument and will disclose the methodologies on its official website, which will be updated after any subsequent modification thereof.

Each credit rating report will have a reference to the particular methodology that has been followed. All analysts should use the methodology established by the CRC.

The rating committee of the CRC will review the rating criteria, methodology, and models at least once every year and will amend the rating methodology if necessary, as per rules.

According to the new rules, credit rating or rating means a formal evaluation or assessment of credit or investment, capability of servicing obligations, credit worthiness, and earnings or cash flow generating prospects of an individual, an entity, or a country.

The CEO of CRC, in consultation with the chief rating officer, will structure its rating teams composed of at least two analysts in order to make an objective assessment with different viewpoints.

The rating committee will be independent in its rating decision-making and will disregard any internal or external pressure or interference.

The CRC will disclose, in the rating agreement, the type of its compensation arrangements with the rated entities/clients. It should not receive any compensation from a rated entity that is unrelated to its rating services.

Every CRC must fulfill the capital adequacy requirements as specified under the Bangladesh Securities and Exchange Commission (Risk Based Capital Adequacy) Rules, 2019.

Once a rating is assigned and announced, the CRC must monitor on an ongoing basis any changes in the issuer’s/issue’s/entity’s creditworthiness.

The directors of CRC must also disclose the respective holding positions of securities, including listed securities, by each of them on a half-yearly basis on their official website with a copy to the commission, the rules said.