MORNBFI Vol. 1 - Planters Development Bank

§ 4931Q.208.12.31(2) The assessment methodology of theCRA must be based both on qualitative andquantitative approaches; and(3) The CRA must use an assessmentmethodology that is subject to on-goingreview and is responsive to changes in theoperations of assessed/rated entities.d. Independence(1) The CRA must be free from controlof and undue influence by the entities itassesses/rates;(2) The assessment process must befree from ownership pressures to allowmanagement to exercise independentprofessional judgement;(3) Persons directly involved in theassessment process of the CRA are freefrom conflicts of interest with assessed/rated entities, and(4) The CRA does not assess/rate anassociate entity.e. Transparency(1) A general statement of theassessment methodology used by the CRAshould be publicly available;(2) The CRA shall disseminate to thepublic thru a well-circularized publication,all assigned ratings disclosing whether therating issued is solicited or unsolicited;(3) The rationale of ratings issued andrisk factors considered in the assessmentshould be made available to the public;(4) The ratings issued by the CRAshould be available both to domestic andforeign institutions with legitimateinterest; and(5) Publication of changes in ratingstogether with the basis for the changeshould be done on a timely basis.f. Disclosure requirements(1) Qualitative disclosures(a) Definition of ratings along withcorresponding symbols;(b) Definition of what constitutes adefault, time horizon within which a defaultis considered and measure of loss given adefault;(c) Material changes within the CRA(i.e., changes in management ororganizational structure, rating personnel,modifications of rating practices, financialdeterioration) that may affect its ability toprovide reliable and credible ratings.(2) Quantitative disclosures(a) Actual default rates experienced ineach rating category; and(b) Rating transitions of assessed/ratedentities over time (i.e., likelihood of an AAAcredit rating transiting to AA etc. over time).g. Credibility(1) The CRA must have a generalreputation of high standards of integrity andfairness in dealing with its clients andconducts its business in an ethical manner;(2) The CRA is generally accepted bypredominant users in the market (i.e.,issuers, investors, bankers, FIs, securitiestraders); and(3) The CRA must carry out its ratingactivities with due diligence to ensureratings are fair and appropriate.For purposes of this Section, asubsidiary refers to a corporation, morethan fifty percent (50%) of the voting stockof which is owned or controlled directlyor indirectly by the CRA while an affiliaterefers to a corporation, not more than fiftypercent (50%) but not less than tenpercent (10%) of the voting stock ofwhich is owned or controlled directly orindirectly by the CRA.Control exists when the parent ownsdirectly or indirectly through subsidiariesmore than one-half (½) of the voting powerof an enterprise unless, in exceptionalcircumstance, it can be clearlydemonstrated that such ownership doesnot constitute control. Control may alsoexist even when ownership is one-half (½)or less of the voting power of an enterprisewhen there is:(a) power over more than one-half (½)of the voting rights by virtue of anagreement with other stockholders;Manual of Regulations for Non-Bank Financial Institutions Q RegulationsPart IX - Page 5