i the pakistan credit rating agency limited · 2018-12-20 · i the pakistan credit rating agency...
Post on 12-Apr-2020
1 Views
Preview:
TRANSCRIPT
The Pakistan Credit Rating Agency Limited
TREATMENT OF THE CONFIDENTIAL
INFORMATION
PACRA POLICY Page 1 of 5
December 2018 www.pacra.com
1. PACRA
DEFINITION
1.1 PACRA becomes bound and binds all receiving parties by Non-
Disclosure Agreements to restrict the use of Confidential Information solely to the
purpose for which it has been solicited and disclosed.
What constitutes ‘Confidential Information’ for PACRA?
All non-public Information provided by the Client
Deliberations supporting a Rating Action
Rating Action prior to Public Dissemination (Exception: Sharing rating and
Rating Action with the Client during the Pre-publication Issuer Review1)
Criteria / methodology change prior to Public Dissemination
Proprietary models / programs, product designs, business plans
All personal Employee data
Confidentiality status elapses as soon as such information is Publicly
Disseminated
2 SAFEGUARDS 2.1 PACRA has put in place following measures to safeguard Confidential
Information:
2.1.1 Segregation of Functions: PACRA has an organizational
structure with separate divisions - ratings, criteria group, Marketing &
business development, management information technology, finance, IT, non-
rating business. Each divisional-head takes reasonable measures to ensure
that Confidential Information relevant to that particular division is protected.
2.1.2 Restrictions on Securities Investment & Trading: PACRA
doesn’t hold or transact in trading instruments presenting a conflict of
interest. Restrictions described in detail in PACRA Policy for Investment &
Trading in Securities Policy are imposed so that Employees and other
relevant parties do not use Confidential Information for procuring personal
benefits.
2.1.3 Firewalls: PACRA ensures strong firewalls to prevent disclosure
or use of Confidential Information by related parties or their personnel in
cases where PACRA is a parent, subsidiary, joint venture partner or Affiliate
of any organization that might benefit from the Confidential Information
available with PACRA:
1 Business firewalls: PACRA has in place the following business
firewalls:+
a. Ratings Business: PACRA refrains from provide rating services to:
i. A company where any of its director (save such directors
nominated by the Federal Government / Provincial Government /
an institution which is directly or indirectly owned or controlled
by the Federal / Provincial Government) is a substantial
shareholder or is in any way interested in such company | an
undertaking to the effect of absence of conflict of interest with
1 Pre-publication Issuer Review is part of PACRA’s rating process whereby PACRA furnishes a copy of the Rating Report to
the Client before Public Dissemination and publication of the report. The purpose of this process is to provide an
opportunity to the Client to pinpoint any factual errors or any inadvertent disclosure of Confidential Information
The Pakistan Credit Rating Agency Limited
TREATMENT OF THE CONFIDENTIAL
INFORMATION
PACRA POLICY Page 2 of 5
December 2018 www.pacra.com
any PACRA client is furnished by directors before each board
meeting
ii. A company where a person directly or indirectly, holding more
than 10% of share capital of PACRA also holds directly or
indirectly 10% or more of the share capital
iii. Its own instruments
iv. Its associated companies and undertakings or the instruments
issued by them
b. Non-Ratings Business: PACRA shall refrains from:
i Providing consultancy/advisory services or other services to any
of its customers or to any of its customers’ associated companies
and associated undertakings that is being rated or has been rated
by it during the preceding three years unless it has adequate
mechanism in place ensuring that provision of such services does
not lead to a conflict of interest situation with its rating activities
2 Organizational firewalls:
i. Data firewalls: Reasonable physical and electronic data access
restrictions are in place to channelize data and information flow
only to legitimate users.
ii. Ratings firewalls:
Directors and shareholders have no involvement in the
rating process. Directors provide an undertaking to this
effect at the time of appointment.
Ratings function is entirely independent of the
management. The chief executive officer may be part of
the rating committee subject to the condition that his
shareholding, directly or indirectly, is less than 5%.
No such individual is appointed as a member of a rating
committee who has or is perceived to have a business
development; or who initiates or participates in a
discussion regarding fee or payment.
2.1.4 Rating & Non-Rating Business: Confidential Information
obtained or developed in the course of the rating process may be relevant to
non-rating services provided by PACRA or its associated Companies. This is
especially relevant to the provision of non-rating products and services. In
this context, Confidential Information safeguards are:
i. Secondment Arrangements: Any Secondment of human resources
from PACRA Ratings Employees to a non-rating function or
Associated Company and vice versa is governed by the following
policies:
No transfer of Confidential Information: The Secondment
arrangement is meant to capitalize upon the human resource
expertise across rating / non-rating departments and
Associated Companies. It does not breach any Non-
Disclosure Agreement and no flow of Confidential
Information occurs to facilitate information gathering,
execution and completion of the underlying assignment.
The Pakistan Credit Rating Agency Limited
TREATMENT OF THE CONFIDENTIAL
INFORMATION
PACRA POLICY Page 3 of 5
December 2018 www.pacra.com
Abstinence Period: No Rating Employee / Non-rating
Employee /and Non-rating Associated Company Employee
would work on any non-rating / rating assignment concerning
a Client, who, within the past one-and-a-half-years (1.5)
years, has worked on that same Client.
3 AUTHORIZED USE
OF CONFIDENTIAL
INFORMATION
3.1 The use of Confidential Information would only be for purposes in
connection with the rating process and related rating activities. Hence, PACRA
reserves the right to use Confidential Information in the manner described below:
Use confidential information, or information and analysis derived
therefrom, without seeking prior Client approval, in publishing any rating
opinion and sector study which incorporates Confidential Information; as
long as such information has been disclosed in such a way that it is no
longer identified as tied to any individual Client
Disclose Confidential Information to External RC members / external
sector experts / consultants bound by Non-Disclosure Agreement (NDA)
to assist in any aspect of the rating process
4 COMPELLED
DISCLOSURE OF
CONFIDENTIAL
INFORMATION
4.1 PACRA is committed to cooperate fully with appropriate investigations
of the Government of Pakistan, state departments / agencies, judicial inquiries and
regulatory requests.
4.2 Notwithstanding anything in the foregoing to the contrary, PACRA also
has legitimate and important interests to protect. Most notably, PACRA is bound
by Non-Disclosure Agreements to its Clients (through its Rating Agreement),
whereby PACRA undertakes that all information, which the Client does not desire
to publicize (barring information that PACRA considers vital to disclose in public
interest and that the Client may ask to conceal), will be kept confidential and will
be used only in the rating process and internal analysis. Additionally, in certain
instances, the Client instructs PACRA (as at the time of the Pre-publication Issuer
review) to refrain from disclosing certain explicit Confidential Information.
4.3 However, in case any Confidential Information is requested by the
Regulators or any parties with an independent legal right to receive such
information, PACRA makes such disclosure without liability.
5 SELECTIVE
DISCLOSURE OF
CONFIDENTIAL
INFORMATION
5.1 Selective Disclosure creates an uneven playing field for market
participants, allowing some to profit from Confidential Information before others.
PACRA explicitly prohibits Selective Disclosure. In case it comes to PACRA’s
knowledge that a Selective Disclosure of the rating opinion has occurred by the
Client, PACRA, if required, promptly makes a Public Dissemination of the rating
opinion, thus disclosed.
6 NON-DISCLOSURE
AGREEMENT
6.1 All parties disclosing / receiving Confidential Information to / from
PACRA sign Non-Disclosure Agreements. This agreement remains binding on
both the disclosing and the receiving party for the entire duration of the
agreement, mentioned therein.
The Employee Non-Disclosure Agreement has been designed as per
Annexure I of the Securities and Exchange Commission of Pakistan’s
The Pakistan Credit Rating Agency Limited
TREATMENT OF THE CONFIDENTIAL
INFORMATION
PACRA POLICY Page 4 of 5
December 2018 www.pacra.com
(SECP) Credit Rating Companies Regulations, 2016 and is titled “Non-
Disclosure Agreement” (NDA)
6.1.1 If any customization / modification is required in Non-Disclosure
Agreement, it shall be made in due consultation with the Competent Authority OR
in response to any modification / revision put forth by SECP.
7 TASKS 7.1 All Employees are required to sign a Non-Disclosure Agreement upon
entry to PACRA and periodically thereafter.
8 POLICY
ADMINISTRATION
8.1 Interpretation: Competent Authority is responsible for interpreting and
applying the Policy to specific situations when questions arise. Competent
Authority is designated on a case-to-case basis based on relevant competency.
8.2 Review: This Policy is subject to review as follows:
Reviewer Scope Frequency Regulation
Competent
Authority
Appropriateness
& sufficiency Annual
Chapter III | 11-B-
(k)
Internal Audit Actual vs. Policy Annual Chapter III | 11-B-
(l)
Expert Comprehensive Every three
(3) years Chapter III | 11-A-
(b)
8.3 Policy Approval: This Policy is required to be approved by the board of
directors.
8.4 Investigations of Suspected Violations: All reported violations shall be
promptly investigated and treated confidentially to the extent reasonably possible.
8.5 Disciplinary Protocol: Compliance with all Codes of Conduct and
PACRA Policies, including this Policy, is a condition for employment.
Compliance with the Codes and PACRA Policies shall be monitored on periodic
basis:
Those who come within the bounds of this Policy shall cooperate fully to
provide truthful, accurate information
The current version of this Policy is available on the website:
www.pacra.com
8 REGULATORY
REQUIREMENTS
8.1 PACRA’s compliance to SECP’s regulatory requirements in terms of
Treatment of the Confidential Information Policy is as follows:
PACRA’s Compliance for Treatment of Confidential Information Policy
SECP’s Credit Rating Companies Regulations, 2016
SECP Regulation Code Clause
Regulation Chapter III | 10-(5): No director, officer or
employee of the credit rating company shall communicate
the information, acquired by him for use for rating
purposes, to any other person except where required under
Section 4
The Pakistan Credit Rating Agency Limited
TREATMENT OF THE CONFIDENTIAL
INFORMATION
PACRA POLICY Page 5 of 5
December 2018 www.pacra.com
law to do so.
Regulation Chapter III | 10-7-(b): A credit rating
company shall not hold or transact in trading instruments
presenting a conflict of interest with credit rating company;
Section 2
Regulation Chapter III | 10-7-(d): A credit rating
company shall not disclose or discuss with outside parties
or make improper use of the non-public information which
has come to its knowledge during business relationship
with the customer;
Section 3
Regulation Chapter III | 11-A-(m): A credit rating
company shall ensure strong firewalls to prevent disclosure
or use of the said non-public information by the related
parties or their personnel in cases where a credit rating
company is a parent, subsidiary, joint venture partner or
affiliate of any organization that might benefit from the
non-public information available with the credit rating
company;
Section 2 | Clause 2.1.3
Regulation Chapter III | 11-A-(n): A credit rating
company shall formulate necessary code of conduct for its
employees regarding handling of the non-public
information which should contain as a minimum the
requirements set out in Annexure I;
Section of the Employee
Code of Conduct
Regulation Chapter III | 11-A-(o): A credit rating
company shall, except as required under these regulations
and without obtaining prior written approval of its
customers, not share with or disclose to media or any other
party including its other customers, any confidential
information about its customers, which has come to its
knowledge in the course of the rating process;
Section 5 and Section 6
Regulation Chapter III | 12-2-(a): The credit rating
company shall ensure that directors on its board shall not be
involved in the rating process and shall provide an
undertaking to this effect at the time of appointment as
directors on the board:
Provided that CEO being deemed director, may be part of
the rating committee subject to the condition that his
shareholding, directly or indirectly, in the credit rating
company is less than 5% of the share capital of the
company;
Section 2 | Clause 2.1.3
Regulation Chapter III | 12-2-(d): The credit rating
company shall ensure that it shall not provide
consultancy/advisory services or other services to any of its
customers or to any of its customers’ associated companies
and associated undertakings that is being rated or has been
rated by it during the preceding three years unless it has
adequate mechanism in place ensuring that provision of
such services does not lead to a conflict of interest situation
with its rating activities;
Clause 2.1.3-1-b-i
The Pakistan Credit Rating Agency Limited
ANNEXURE I | TREATMENT OF THE
CONFIDENTIAL INFORMATION
ANNEXURE Page 1 of 5
December 2018 www.pacra.com
DEFINED TERMS
Associated
Company
“Associated companies” and “associated undertakings” as defined in The Companies Act
(2017), Part 1, Clause 2-(4):
“ ‘associated companies’ and ‘associated undertakings’ - mean any two or more
companies or undertakings, or a company and an undertaking, interconnected with each
other in the following manner, namely:—
(a) if a person who is owner or a partner or director of a company or undertaking, or who,
directly or indirectly, holds or controls shares carrying not less than twenty percent of the
voting power in such company or undertaking, is also the owner or partner or director of
another company or undertaking, or directly or indirectly, holds or controls shares
carrying not less than twenty percent of the voting power in that company or undertaking;
or
(b) if the companies or undertakings are under common management or control or one is
the subsidiary of another; ”
Client An entity / issuer, whose rating assignment is to be undertaken, having signed a Rating
Agreement with PACRA
Codes of
Conduct Sets of Standards (Do’s & Don’ts) governing day-to-day conduct
Competent
Authority A designated authority considered to possess the requisite expertise / knowledge
Compliance
Officer
An officer designated by PACRA as Compliance officer | Credit Rating Companies
Regulations, 2016, Regulation 11-F
Confidential
Information
PACRA classifies information as Public or Confidential / non-public.
Public Information is information available in a legitimate manner (website dissemination,
subscription etc.). For instance, all information on PACRA’s website is Public
Information.
Confidential Information is any data or information, tangible or intangible, material
(sensitive) or not, that is either:
i Not available without the explicit consent of the owner of such information
ii Capable of: (a) Having an effect on the market for a Security, and (b) Affecting the
investment decision of an investor
iii Made available to PACRA with the implicit or explicit understanding / agreement
that it would remain confidential; and / or
iv Proprietary to PACRA so that PACRA is the originator of such information
Conflict of
Interest (COI)
Conflict of interest (COI): A situation wherein an individual / organization, upholding a
position of trust / fiduciary responsibility, encounters a competing personal / professional
interest that has the potential to make it difficult for such individual / organization to fulfill
its position of trust / fiduciary responsibility objectively and impartially:
i Potential / Perceived COI: A COI that exists due to inherent aspects in a business
model despite institution of prudent systems and controls to manage such COI
ii Actual COI: A COI that comes into existence as a result of a failure in systems
The Pakistan Credit Rating Agency Limited
ANNEXURE I | TREATMENT OF THE
CONFIDENTIAL INFORMATION
ANNEXURE Page 2 of 5
December 2018 www.pacra.com
and controls instituted to manage a potential COI
Disclosure The action of making new or Confidential Information known
Employees
Full-time or part-time individuals working for PACRA for a work-duration of minimum 90-
days. All Employees are classified as per their Line of Business:
Types of
Employees Line of Business
Internal RC
Members
See Defined Term “Rating Committee (RC), RC Members” later in
this Section
Rating
Analysts also
termed as
“Analysts”
“Performs analytical functions that are necessary for the issuing or
monitoring of a credit rating or participates in determining credit
ratings.” committee | Credit Rating Companies Regulations, 2016,
Regulation Annexure F)
Criteria Group
Employees
“Responsible for formulating and reviewing such criteria,
methodologies and procedures as specified in Annexure G to these
regulations and such group shall ensure that all new ratings criteria,
methodologies and procedures and subsequent amendments therein
have been made after careful and thorough analysis from both
analytical and market perspective;“ | Credit Rating Companies
Regulations, 2016, Regulation Chapter III, 11-C-(s))
Business
Development
& Marketing
Employees
“Who initiates or participates in a discussion regarding fee or payment
with any customer of the credit rating company;” Credit Rating
Companies Regulations, 2016, Regulation Chapter III, 12-2-(c))
Compliance &
Policy
Employees
“Responsible for monitoring compliance of the credit rating company
with the applicable regulatory regime;” Credit Rating Companies
Regulations, 2016, Regulation Chapter III, 11-F-(a))
Support
Employees
Performing support functions such as IT & administration, finance,
human resource, management IT
Non-rating
Employees Employees responsible for performing non-rating business
Initial rating
The rating assigned by PACRA for the first time
Ratings are also termed “Initial” when a previously:
i Private Rating converts into a Public Rating
ii Preliminary Rating is finalized
iii Withdrawn rating comes back to PACRA with a fresh Mandate
iv Defaulted rating emerges from default and assigned a fresh rating
Investment
All methods by which a Covered Person may possess an interest in a Security including
direct and beneficial ownership:
“beneficial ownership of shareholders or officer of a company” means ownership of
securities beneficially owned, held or controlled by any officer or substantial shareholder
directly or indirectly, either by—
(a) him or her;
The Pakistan Credit Rating Agency Limited
ANNEXURE I | TREATMENT OF THE
CONFIDENTIAL INFORMATION
ANNEXURE Page 3 of 5
December 2018 www.pacra.com
(b) the wife or husband of an officer of a company, not being herself or himself an officer
of the company;
(c) the minor son or daughter of an officer where ―son‖ includes step-son and
―daughter‖ includes step-daughter; and ―minor means a person under the age of
eighteen years;
(d) in case of a company, where such officer or substantial shareholder is a shareholder,
but to the extent of his proportionate shareholding in the company:
Provided that ―control‖ in relation to securities means the power to exercise a controlling
influence over the voting power attached thereto:
Provided further that in case the substantial shareholder is a non-natural person, only those
securities will be treated beneficially owned by it, which are held in its name.
Explanation.—For the purpose of this Act “substantial shareholder”, in relation to a
company, means a person who has an interest in shares of a company-
(a) the nominal value of which is equal to or more than ten per cent of the issued share
capital of the company; or
(b) which enables the person to exercise or control the exercise of ten per cent or more of
the voting power at a general meeting of the company; “
Securities Act, 2015, Part I, Clause 2-(7)
Line of
Business
Areas of activity / functionality at or in PACRA: (i) Ratings, (ii) Criteria Group, (iii)
Business Development & Marketing, (iv) Compliance & Policy, (v) Support, (vi) Non-
rating business
Non-Disclosure
Agreement
A formal, written agreement between one, who discloses information that it considers
confidential and the other, who receives such information, knowing fully well that the
information is confidential binding the latter to an oath of confidentiality
Policies Official, documented statement on business, conduct and processes
Procedures A step-by-step guide and method / tool to implement a Policy / Methodology in a consistent
and uniform manner
Public
Dissemination
(also termed
Announcement)
Distribution of information in a manner whereby it becomes widely, freely and
simultaneously available to all users of such information. This includes public filing with a
regulatory body and disclosure on PACRA’s website or in media
Ratee The entity / issuer whose rating is assigned
Rating Actions
Typical Rating decisions that PACRA takes in relation to its rating. These are:
i Upgrade: The rating has been raised in the Rating Scale
ii Maintain: The rating has been kept at the same level on the rating scale. Ratings
“Maintain” may also include a continuation of, or change in a Rating Modifier
(Outlook, Rating watch), if it is used
iii Downgrade: The rating has been lowered in the Rating Scale
iv Improved: The performance ranking is higher compared to previous one in the
The Pakistan Credit Rating Agency Limited
ANNEXURE I | TREATMENT OF THE
CONFIDENTIAL INFORMATION
ANNEXURE Page 4 of 5
December 2018 www.pacra.com
Fund Performance Ranking Scale
v Declined: The performance ranking is lower compared to previous one in the Fund
Performance Ranking Scale
vi Same: The performance ranking is similar compared to previous one in the Fund
Performance Ranking Scale
vii Withdraw: A rating is withdrawn on: a) termination of rating mandate, b)
cessation of underlying entity, c) the debt instrument is redeemed, d) the rating
remains suspended for six months, or e) the entity/issuer defaults
viii Redeem: Withdrawal on account of redemption of obligations
ix Suspended: It is not possible to update an opinion due to lack of requisite
information. Opinion should be resumed in foreseeable future. However, if this
does not happen within six (6) months, a suspended rating should be considered
withdrawn.
x Initial: The rating has been assigned as an “Initial Rating”
xi Preliminary: The rating has been assigned as a “Preliminary Rating”
xii Outlook / Rating Watch: See the definition for Rating Modifiers
xiii Harmonize: Rating action evolving from the process of harmonization. PACRA
defines harmonization as a change in rating due to revision in applicable
methodology or underlying scale.
Rating
Agreement
An agreement enumerating the terms and conditions driving the rating relationship between
PACRA and the Ratee
Rating
Committee
(RC), RC
Members
Rating Committee: PACRA Rating Committee (RC) is a forum whereby the rating
proposed by the Rating Team undergoes deliberation culminating in a decision as to what
the final rating would be. RC is core to the finalization of rating opinion. Rating decisions
are taken exclusively by the RC and not by any individual and are completely independent
of any influence.
RC Members: PACRA RC is structured to include both Internal and External RC
Members:
Internal RC Member: A PACRA Employee who has been formally designated in
the position. He may have other responsibilities / functions in PACRA.
External RC Member: “Any person who has been appointed by credit rating
company as member of its rating committee and has no direct or indirect association
with the credit rating company or any of its directors and sponsors.”
All RC Members need to be approved by BoD | Credit Rating Companies
Regulations, 2016, Regulation Chapter III, 11-C-(e)
All External RC Members need to be approved by the Securities and Exchange
Commission of Pakistan (SECP), in addition | Credit Rating Companies Regulations,
2016, Regulation Chapter III, 11-C-(g)
Secondment
Transfer of human resource from any Line of PACRA Business to work on a specific
assignment (Rating or Non-rating Business) for any designated period of time OR until the
Assignment is completed or vice versa. This also covers transfer of human resource to /
from PACRA to PACRA Analytics (Pvt.) Limited (the Affiliate) or vice versa
Selective Intentional or unintentional release of Confidential Information to a select individual / group
The Pakistan Credit Rating Agency Limited
ANNEXURE I | TREATMENT OF THE
CONFIDENTIAL INFORMATION
ANNEXURE Page 5 of 5
December 2018 www.pacra.com
Disclosure From PACRA’s point of view: Selective disclosure constitutes divulging the rating
opinion to anyone other than the Client before Public Dissemination. The release of
such information to the Client doesn’t constitute selective disclosure
From Client’s point of view: Selective disclosure constitutes divulging the rating
opinion to anyone else (See exception below) before Public Dissemination by
PACRA. EXCEPTION: The Client may divulge the Private Rating in cases where
justifiable grounds exist to disclose Confidential Information and where the
recipient of such Confidential Information owes a duty of confidentiality to the
Client. These recipients could be the Clients shareholders, directors, lenders,
advisors, consultants, a government body, regulatory institutions etc.
Securities Stocks, bonds, commodities, foreign exchange currencies, indices and their derivatives
(futures contracts, options, etc.)
Substantial
shareholder
”Substantial shareholder” in relation to a credit rating company, means a person who has an
interest in shares of a company;
i. the nominal value of which is equal to or more than ten per cent of the issued share
capital of the company; or
ii. which enables the person to exercise or control the exercise of ten per cent or more
of the voting power at a general meeting of the company;
Credit Rating Companies Regulations, 2016, Regulation Chapter I, 2-(g)
Trade, Trading Any transaction involving buying or selling of a Security
top related