Credit Rating Agencies’ Independence Paramount—SC

SC reviewing framework to strengthen rating objectivity

10 June 2022  |  Kuala Lumpur

The Securities Commission Malaysia (SC) would like to reiterate that given the critical role credit rating agencies play in providing credible credit rating opinion, the independence and objectivity of credit rating agencies’ credit assessment process and rating decisions should never be compromised.

To ensure this, the SC’s Guidelines on the Registration of Credit Rating Agencies (CRA Guidelines) have set out the obligations that a credit rating agency (CRA) must continuously comply with. These include subjecting the appointment of CRAs’ board members and CEOs to fit and proper assessment as well as the SC’s approval.

Other requirements include the establishment of a rating committee -- comprising experienced, qualified and independent members -- to assign and decide on all credit ratings, thus avoiding board and shareholders involvement in rating discussions and decisions. Additionally, the chair of the rating committee must be a qualified and independent member.

The SC will continue to take pro-active measures to strengthen rating independence and objectivity, and where required, impose additional conditions to approvals given to applicants. As such, the SC is reviewing the existing framework, including on rating committees and their composition.

Going forward, the SC intends to make it a requirement for the majority of the board members (at both the holding and rating companies) as well as the rating committee to be independent and for any decision to provide dividend to shareholders to require the SC’s prior approval so as to ensure the CRA continues to operate with sufficient resources to sustain its rating operations.

Commenting on recent news reports on possible changes to the shareholding of RAM Holdings Berhad (RAM), the SC clarified that any change of shareholdings that results in a person controlling 20% or more of the paid-up capital of a CRA requires the prior approval of the SC.

The SC’s prior approval is also required for any subsequent cumulative increase in shareholding of 10% or more of the paid-up capital of the CRA. Both requirements are prescribed under the CRA Guidelines.

In evaluating such applications, the SC considers, among others, the value proposition proposed by applicants, vis-a-vis the increasing competitive environment that CRAs are operating in.

These include product expansion, business growth and sustainability, regional collaboration, enhancement of skill sets and overall contribution to the development of the local credit rating industry and the Malaysian bond market. This is in line with the aims of the Capital Market Masterplans.

To date, the SC has given approval to more than one applicant to hold more than 20% shareholding in a CRA. Other than acquiring shareholding in an existing CRA, applications can also be made for the establishment and registration of a third rating agency, subject to the requirements stated in the CRA Guidelines. Shareholders of CRAs can be companies, including public listed companies, in line with similar practices in other jurisdictions.

In discharging its duties to ensure fair, efficient and transparent market, the SC will continue to adhere to its robust decision-making process in line with its strict governance protocols.


about the SC
The Securities Commission Malaysia (SC) was established on 1 March 1993 under the Securities Commission Act 1993 (SCA). We are a self-funded statutory body entrusted with the responsibility to regulate and develop the Malaysian capital market.

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