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Dubai Financial Services Authority (DFSA): Contents

Dubai Financial Services Authority (DFSA)
Laws
Rulebook Modules
Conduct of Business Module (COB) [VER32/02-19]
Sourcebook Modules
Consultation Papers
Policy Statements
DFSA Codes of Practice
Amendments to Legislation
Media Releases
Notices
Financial Markets Tribunal
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  • COB 8 Specific Rules – Operating A Credit Rating Agency

    • COB 8.1 Application

      • COB 8.1.1

        (1) This chapter applies to every PersonG who carries on, or intends to carry on, the Financial ServiceG of Operating a Credit Rating AgencyG in or from the DIFC.
        (2) In this chapter, where a reference is made to a Rating SubjectG which is a credit commitment, a debt or a debt-like Investment referred to in GEN Rule 2.27.1(3)(b) or (c), that reference is to be read, where the context requires, as a reference to the PersonG responsible for obtaining the Credit RatingG .
        [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

        • COB 8.1.1 Guidance

          1. The Financial ServiceG of Operating a Credit Rating AgencyG is defined in GEN Rule 2.27.1. This chapter contains the specific conduct requirements that apply to PersonsG carrying on the Financial ServiceG of Operating a Credit Rating AgencyG .

          Code of conduct/ethics

          2. The outcome intended by some of the specific conduct requirements in this chapter can be achieved by adopting a code of conduct/ethics. Whilst not proposing to prescribe that a Credit Rating AgencyG must have a code of conduct/ethics, a Credit Rating AgencyG should consider, particularly where noted in relation to specific Rules, adopting such a code as a means of achieving the outcome intended by the relevant requirements. However, where a Credit Rating AgencyG does not adopt such a code, the onus is on the Credit Rating AgencyG to demonstrate how it achieves compliance with the relevant requirements through other means.

          Persons responsible for obtaining a Credit Rating

          3. Not all Rating SubjectsG are bodies corporate. For example, Credit RatingsG can be provided in respect of a credit commitment given by a PersonG , or a debt or debt-like Investment. In such instances, where a Rule in this chapter requires the Rating SubjectG to carry out some activity, such a reference is to be read, pursuant to COB Rule 8.1.1(2), as a reference to the PersonG who is responsible for obtaining the Credit RatingG . Such a PersonG would generally be the originator, arranger or sponsor of the relevant financial product which is being rated. The Credit Rating AgencyG should clearly identify the PersonG responsible for a Rating SubjectG before proceeding with its Credit Rating ActivitiesG relating to that Rating SubjectG .
          4. However, there is no restriction against more than one PersonG being identified as PersonsG responsible for obtaining a Credit RatingG relating to a Rating SubjectG . In such cases, a Credit Rating AgencyG should clearly identify those PersonsG as responsible PersonsG relating to the relevant Rating SubjectG .
          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

    • COB 8.2 Additional Principles for Credit Rating Agencies

      • COB 8.2 Guidance

        Credit Rating AgenciesG are required to comply with, in addition to the Principles in sections GEN 4.1 and GEN 4.2, three further Principles set out in this section.

        [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

      • Principle 1 – Quality and integrity

        • COB 8.2.1

          A Credit Rating AgencyG must take all reasonable steps to ensure that its Credit RatingsG are well founded and are based on a fair and thorough analysis of all relevant information which is reasonably known or available to the Credit Rating AgencyG .

          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

      • Principle 2 – Independence and conflicts of interest

        • COB 8.2.2

          A Credit Rating AgencyG must take all reasonable steps to ensure that its decisions relating to Credit RatingsG are independent and free from political or economic pressures and not affected by conflicts of interest arising due to its ownership structure or business or other activities or conflicts of interest of its EmployeesG .

          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

      • Principle 3 – Transparency and disclosure

        • COB 8.2.3

          A Credit Rating AgencyG must take all reasonable steps to ensure that it conducts its Credit Rating ActivitiesG in a transparent and responsible manner.

          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

          • COB 8.2.3 Guidance

            Acting in a responsible manner means that a Credit Rating AgencyG undertakes the level of due diligence and care expected of an entity undertaking similar business in conducting its Credit Rating ActivitiesG . What is reasonable would depend on the nature, scale and complexity of its operations, including models and methodologies it has adopted in order to formulate Credit RatingsG .

            [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

    • COB 8.3 Quality of the rating process

      • Policies and procedures

        • COB 8.3.1

          (1) A Credit Rating AgencyG must adopt, implement and enforce policies, procedures and controls that are adequate to ensure that:
          (a) its Credit RatingsG are based on a thorough and fair analysis of all the Relevant InformationG ;
          (b) it has clearly defined methodologies and models for the purposes of preparing and reviewing Credit RatingsG ; and
          (c) its Rating AnalystsG , in preparing and reviewing Credit RatingsG , adhere to the relevant methodologies and models adopted by the Credit Rating AgencyG , including any updates of such methodologies and models.
          (2) For the purposes of (1)(a), Relevant InformationG is information which is:
          (a) reasonably known or available to the Credit Rating AgencyG ; and
          (b) required, pursuant to the established rating methodologies and models adopted by the Credit Rating AgencyG .
          (3) For the purposes of (1)(c), a Rating AnalystG means an EmployeeG of a Credit Rating AgencyG who performs analytical functions in relation to the preparation or review of a Credit RatingG .
          (4) A Credit Rating AgencyG must have adequate mechanisms to monitor whether its policies, procedures and controls are implemented in such a way so as to ensure that they operate, on an on-going basis, effectively and as intended.
          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

          • COB 8.3.1 Guidance

            Application to Groups and Branches

            1. Where a Credit Rating AgencyG is a member of a GroupG , the Credit Rating AgencyG may rely on the policies, procedures and controls adopted at the group-wide level. Where this is the case, the Credit Rating AgencyG should ensure that the group-wide policies, procedures and controls are consistent with the requirements applicable to it and do not constrain its ability to comply with the applicable requirements in the DIFC.
            2. In the case of BrancG h operations, the DFSA will only grant an authorisation to conduct the Financial ServiceG of Operating a Credit Rating AgencyG where it is satisfied with the adequacy of the home jurisdiction regulation of the relevant legal entity.
            3. Considerations set out in Guidance No 1 and 2 are equally relevant to the other requirements applicable to CRAs which are set out in this chapter.

            Periodic review

            4. A Credit Rating AgencyG should ensure that there is a formal and rigorous periodic review (at least annually) of the effectiveness of its systems and controls, including the methodologies and models it uses, to ensure that they remain effective and adequate in light of factors such as changing market conditions and practices and matters that have a material impact on the users of Credit RatingsG .
            5. Such a review should be carried out by individuals who are not involved in the day-today management or operations of the Credit Rating AgencyG . Taking into account the nature, scale and complexity of its business, a Credit Rating AgencyG may undertake such a review through a designated function at the group-wide level, or using external consultants. The DFSA expects the findings of such a review to be made available to the Governing BodyG and the senior management of the Credit Rating AgencyG , and that any inadequacies identified are promptly and effectively addressed.

            Analysts

            6. By definition, the EmployeesG of a Credit Rating AgencyG include Rating AnalystsG who are either employed by the Credit Rating AgencyG or appointed under a contract for services to perform analytical functions in relation to the preparation of Credit RatingsG . Such appointed Rating AnalystsG may, in the case of a Credit Rating AgencyG which is part of a GroupG , be employed by another entity within the GroupG . In that case, the Credit Rating AgencyG should ensure that such Rating AnalystsG comply with the applicable DFSA Rules when conducting Credit Rating ActivitiesG on its behalf.

            Relevant Information

            7. See Guidance under Rule 8.3.4.
            [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

      • Methodologies and models

        • COB 8.3.2

          For the purposes of producing and reviewing Credit RatingsG , a Credit Rating AgencyG must adopt and use rating methodologies and models, including any key rating assumptions, which:

          (a) are rigorous and systematic;
          (b) to the extent possible, result in Credit RatingsG that can be subjected to some form of objective validation based on historical experience;
          (c) are subject to periodic review as appropriate; and
          (d) are made public, including any changes made to such methodologies and models.
          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

          • COB 8.3.2 Guidance

            1. A Credit Rating AgencyG will need to establish proper procedures for the regular review of its methodologies and models, including any key rating assumptions used in such methodologies and models, in order to be able to properly assess the Relevant InformationG and prepare credible and high quality Credit RatingsG . Any changes to the methodologies and models should incorporate cumulative experience gained through on-going market surveillance.
            2. Where any material modifications are made to the methodologies or models used by the Credit Rating AgencyG , it should make prior disclosure to the public of such modifications before applying the modified methodologies and models, especially to existing Credit RatingsG .
            3. A Credit Rating AgencyG should assess whether existing methodologies and models for providing a Credit RatingG in respect of structured financial products remain appropriate where the risk characteristics of the assets underlying a structured product change materially.
            [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

      • Rating Analysts

        • COB 8.3.3

          A Credit Rating AgencyG must ensure that its Rating AnalystsG :

          (a) have adequate and appropriate knowledge and experience to carry out Credit Rating ActivitiesG assigned to them;
          (b) have access to, and use, all the Relevant InformationG ;
          (c) apply the relevant methodologies and models in a transparent and consistent manner;
          (d) act without bias in carrying out their functions; and
          (e) observe high standards of integrity.
          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

          • COB 8.3.3 Guidance

            1. See Rules GEN 5.3.18 and GEN 5.3.19 with regard to the assessment that a Credit Rating AgencyG , as an Authorised FirmG , needs to undertake to ensure that its EmployeesG (including Rating AnalystsG ) are fit and proper and have adequate competencies in order to carry out their functions.
            2. A Credit Rating AgencyG should structure its rating teams in such a way so as to promote continuity of adequate skills and expertise within a relevant team, and avoidance of bias in the preparation or review of a Credit RatingG . For the purpose of promoting objectivity and lack of bias in preparing or reviewing Credit RatingsG , measures such as periodic rotation of Rating AnalystsG , as appropriate, should be considered.
            [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

      • Credit Ratings

        • COB 8.3.4

          A Credit Rating AgencyG must ensure that:

          (a) the role and responsibility of assigning a Credit RatingG rests clearly on the Credit Rating AgencyG and not on any of its Rating AnalystsG ;
          (b) the information it uses for the purposes of preparing or reviewing a Credit RatingG is of sufficient quality to support a credible Credit RatingG ;
          (c) its Credit RatingsG :
          (i) reflect all the Relevant InformationG ;
          (ii) do not contain any misrepresentations, and are not misleading in respect of the creditworthiness of the Rating SubjectG ; and
          (iii) contain clear and prominent statements if they are premised on limited historical data, are not subject to on-going surveillance or are subject to any other limitation which has or may have a material impact on the relevant Credit RatingG ; and
          (d) it does not produce a Credit RatingG where it has reasonable doubts as to whether a credible Credit RatingG can be produced due to the complexity of, or the lack of adequate information relating to, a potential Rating SubjectG .
          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

          • COB 8.3.4 Guidance

            Relevant InformationG is defined in COB Rule 8.3.1(2). A Credit Rating AgencyG should adopt adequate measures to ensure that the quality of information it uses is reliable to support a credible Credit RatingG . Such measures may include:

            a. relying on independently audited financial statements and public disclosures where available;
            b. conducting random sampling examination of the information received; and
            c. having contractual arrangements with PersonsG who request a Credit RatingG , or any third party source from whom information is obtained, that render such PersonsG liable if they knowingly provide materially false or misleading information, or fail to conduct due diligence they are reasonably expected to carry out to verify the accuracy of the Relevant InformationG .
            [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

      • On-going monitoring and review of the Credit Ratings

        • COB 8.3.5

          (1) Unless a Credit RatingG clearly states that it will not be subject to ongoing review, a Credit Rating AgencyG must:
          (a) have adequate personnel and financial resources committed for the on-going surveillance of the creditworthiness of the Rating SubjectG ;
          (b) ensure a review of a Credit RatingG is undertaken regularly, and in any case, promptly upon becoming aware of information reasonably likely to result in a Rating ActionG ; and
          (c) take any appropriate Rating ActionG promptly.
          (2) For the purposes of (1), a Rating ActionG is an upward or downward move of a Credit RatingG , a confirmation of an existing Credit RatingG or a withdrawal of a Credit RatingG .
          (3) Following the review in (1)(b), a Credit Rating AgencyG must issue a notice of its Rating ActionG . Such a notice must:
          (a) be promptly disseminated to the public or distributed by subscription, as applicable; and
          (b) contain a clear and prominent statement specifying:
          (i) the date on which the Credit RatingG was last updated; and
          (ii) the date on which the new Credit RatingG is effective; or
          (iii) if the Credit RatingG is withdrawn, the effective date from which it is withdrawn and the reasons for such withdrawal.
          (4) Without prejudice to the obligation to conduct on-going surveillance and review of a Credit RatingG , where a Credit Rating AgencyG forms an opinion on reasonable grounds that it does not have adequate or credible Relevant InformationG , it must not support an existing Credit RatingG , and must withdraw such a Credit RatingG immediately. Where it does so, it must issue a notice of withdrawal of the Credit RatingG in accordance with (3).
          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

          • COB 8.3.5 Guidance

            1. A Credit Rating AgencyG may use separate teams of Rating AnalystsG for determining initial Credit RatingsG and subsequent review of such ratings. It should ensure that each team has the requisite level of expertise and resources to perform its functions effectively.
            2. A Credit Rating AgencyG should undertake both periodic and ad hoc reviews of its Credit RatingsG as appropriate to the nature of the Rating SubjectG , the market conditions and reasonable expectations of users of such Credit RatingsG . Such reviews should apply any changes in its rating methodologies and models, including rating assumptions.
            3. A Credit Rating AgencyG should have clear and published parameters relating to the review of Credit RatingsG , including, to the extent possible, when it will undertake any ad hoc reviews. Such parameters should include any material change in the risk characteristics of the Rating SubjectG or significant changes in the markets which relate to, or affect, the Rating SubjectG .
            4. A Credit Rating AgencyG may place under surveillance a Rating SubjectG upon becoming aware of any material changes relating to, or affecting, it. A Credit Rating AgencyG should consider whether, in such circumstances, it is appropriate to give any prior notice that the relevant Rating SubjectG is under surveillance.
            [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

    • COB 8.4 Integrity of the credit rating process

      • Policies and procedures

        • COB 8.4.1

          To promote integrity of its credit rating process, a Credit Rating AgencyG must implement adequate policies, procedures and controls to ensure that it and its EmployeesG :

          (a) comply with all the applicable legal and other requirements, including those relating to its Credit Rating ActivitiesG , regardless of where such activities are carried on;
          (b) deal fairly and honestly with Rating SubjectsG and PersonsG using or relying on its Credit RatingsG , such as investors and other market participants, including the public; and
          (c) do not, either expressly or implicitly, give any assurances or guarantees of a particular rating outcome before undertaking a full analysis of the Relevant InformationG in accordance with the applicable methodologies and models.
          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

          • COB 8.4.1 Guidance

            1. Where a Credit Rating AgencyG undertakes activities in a number of jurisdictions, the effect of COB Rule 8.4.1 is that it will need to ensure that respective obligations arising in all those jurisdictions are effectively met as appropriate. In doing so, it will need to take account of the application of the DFSA regime to GroupG and BranchG operations (see Guidance 1 and 2 under Rule 8.3.1).
            2. A Credit Rating AgencyG is required, under GEN Rule 7.5.1(2), to have an Authorised IndividualG as its Compliance OfficerG . It is the responsibility of the Compliance OfficerG to ensure proper observance by the Credit Rating AgencyG and its EmployeesG , particularly Rating AnalystsG , of the applicable legal and other obligations, including any code of conduct/ethics adopted by the Credit Rating AgencyG . Such a code should generally set out matters relating to unacceptable and unethical behaviour which should be avoided by its EmployeesG . See also Guidance 2 under section 8.1.1.
            [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

    • COB 8.5 Conflicts of interest and independence

      • COB 8.5 Guidance

        1. There is a significant overlap between conflicts of interest and lack of independence of EmployeesG (who include Rating AnalystsG ). Therefore, some of the requirements set out in this section, while promoting independence of Credit Rating AgenciesG , are equally relevant for the purpose of addressing conflicts of interest. For convenience, they are set out under distinct headings.
        2. The more detailed requirements set out in this section are designed to enable a Credit Rating AgencyG to meet the requirements set out under COB Rule 8.2.2 (Principle 2 – Independence and transparency). For this purpose, a Credit Rating AgencyG should have a detailed code of conduct/ethics that sets out its policies and procedures for meeting the requirements including those in this module covering aspects relating to conflicts of interest, as well as independence, of its EmployeesG . See also Guidance 2 under section 8.1.1.
        [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

      • Policies and procedures

        • COB 8.5.1

          A Credit Rating AgencyG must have adequate, clear and well documented policies, procedures and controls to:

          (a) promote high standards of care, independence and objectivity in decision making by its EmployeesG ;
          (b) ensure that its Credit RatingsG are not influenced by any considerations other than those which are relevant in accordance with its published methodologies and models as applicable to the particular Rating SubjectG ; and
          (c) identify, and eliminate or manage, as appropriate, including through disclosure, any conflicts of interest that may influence its Credit RatingsG , including those conflicts of interest which may influence its EmployeesG who are involved in producing or reviewing Credit RatingsG .
          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

          • COB 8.5.1 Guidance

            1. A Credit Rating AgencyG should neither take, nor forbear or refrain from taking, any Rating ActionG based on its potential effect (economic, political or otherwise) on the Credit Rating AgencyG , its Rating SubjectsG , investors or any other market participants (for example, the existence or non-existence of business relationship between the Credit Rating AgencyG or a member of its GroupG and the Rating SubjectG ).
            2. The determination of a Credit RatingG should be influenced only by factors relevant to the credit assessment in accordance with its published methodologies and models as applicable to the particular Rating SubjectG .
            3. A Credit Rating AgencyG should, at a minimum, set out clearly when conflicts of interest arise and, in relation to what type of business or commercial dealings or transactions, and between whom, such conflicts of interest can arise.
            4. Where the Rating SubjectG (such as a government) has, or is simultaneously pursuing, any oversight function relating to the Credit Rating AgencyG , the Credit Rating AgencyG should avoid assigning EmployeesG involved in the Credit RatingG of the Rating SubjectG for also discharging any function relating to the Credit Rating Agency'sG oversight.
            [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

      • Provision of consultancy and ancillary services

        • COB 8.5.2

          (1) A Credit Rating AgencyG must not provide to a Rating SubjectG or a Related PartyG of a Rating SubjectG consultancy or advisory services relating to the corporate or legal structure, assets, liabilities or activities of such Rating SubjectG or Related PartyG .
          (2) For the purposes of (1), a Related PartyG of a Rating SubjectG is:
          (a) an undertaking which is in the same GroupG as the Rating SubjectG ;
          (b) any PersonG who interacts with the Credit Rating AgencyG in respect of the Credit RatingG ; or
          (c) any PersonG who has a significant business or other relationship with the Rating SubjectG or any PersonG referred to in (a) or (b).
          (3) Without prejudice to (1), a Credit Rating AgencyG may provide services which are ancillary to its Credit Rating ActivitiesG to a Rating SubjectG or a Related PartyG of the Rating SubjectG where it:
          (a) has a clear definition of what services it considers as ancillary services;
          (b) documents why such services are considered not to raise any conflicts of interest with its Credit Rating ActivitiesG ; and
          (c) has in place adequate mechanisms to minimise the potential for any conflicts of interest arising.
          (4) If a member of the GroupG in which the Credit Rating AgencyG is also a member provides services of the kind referred to in (1) to a Rating SubjectG of the Credit Rating AgencyG or a Related PartyG of such a Rating SubjectG , such services must be operationally and functionally separated from the business of the Credit Rating AgencyG .
          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

          • COB 8.5.2 Guidance

            1. The prohibition in COB Rule 8.5.2(1) includes, for example, making proposals or recommendations regarding the design or structure of Rating SubjectsG , including suggestions as to how a desired rating could be achieved. Therefore, such services cannot be provided.
            2. Some of the activities which are prohibited under COB Rule 8.5.2(1) may constitute a Financial ServiceG other than Operating a Credit Rating AgencyG . Even if a Credit Rating AgencyG has an authorisation to provide such a Financial ServiceG , it is prevented from providing such services to a Rating SubjectG or a Related PartyG because of the prohibition in COB Rule 8.5.2(1).
            3. Ancillary services referred to in COB Rule 8.5.2(3) include, for example, market forecasts, estimates of economic trends, pricing analysis and other general data analysis as well as related distribution services. These services can be provided to Rating SubjectsG and their Related PartiesG where the requirements in COB Rule 8.5.2(3) are met. These services are also unlikely to constitute other Financial ServicesG .
            4. A Credit Rating AgencyG should separate operationally its Credit Rating ActivitiesG from any ancillary services it provides in accordance with COB Rule 8.5.2(3). For example, Rating AnalystsG and other key individuals involved in Credit Rating ActivitiesG should not also be involved in the provision of such services.
            5. Where a GroupG member provides to a Rating SubjectG of a Credit Rating AgencyG any ancillary services, the Credit Rating AgencyG and the GroupG member should not share EmployeesG or premises to ensure operational separation.
            [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

      • Credit Rating Agency fees

        • COB 8.5.3

          A Credit Rating AgencyG must not enter into fee arrangements for providing Credit RatingsG where the fee depends on the rating outcome or on any other result or outcome of the Credit Rating ActivitiesG .

          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

      • Other conflicts of interest

        • COB 8.5.4

          A Credit Rating AgencyG must not engage in any securities or derivatives transactions with, relating to, or in respect of, a Rating SubjectG or its Related PartyG in circumstances where such a transaction would amount to, or pose a risk of, a conflict of interest with respect to its Credit Rating ActivitiesG .

          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

          • COB 8.5.4 Guidance

            Examples of investments which would not present conflicts of interest include investments in collective investment funds which might contain investments in a Rating SubjectG or its Related PartyG .

            [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

    • COB 8.6 Independence of Rating Analysts and other Employees

      • Policies and procedures

        • COB 8.6.1

          A Credit Rating AgencyG must have adequate policies, procedures and controls to ensure that its EmployeesG , as far as practicable, avoid relationships which compromise or are reasonably likely to compromise the independence and objectivity of its Credit Rating ActivitiesG .

          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

        • COB 8.6.2

          (1) A Credit Rating AgencyG must ensure that its EmployeesG who are directly involved in preparing or reviewing a Credit RatingG of a Rating SubjectG do not initiate, or participate in, discussions regarding fees or payments with the Rating SubjectG or a Related PartyG of the Rating SubjectG .
          (2) A Credit Rating AgencyG must ensure that its EmployeesG who are directly involved in preparing or reviewing a Credit RatingG of a Rating SubjectG , and their Close RelativesG , do not engage in any securities or derivative transactions with, relating to, or in respect of, the Rating SubjectG or a Related PartyG of the Rating SubjectG in circumstances where such a transaction would amount to, or pose a risk of, a conflict of interest with respect to the activities of the relevant EmployeeG .
          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

          • COB 8.6.2 Guidance

            This Rule should be read in conjunction with COB Rule 8.2.2, pursuant to which, EmployeesG of a Credit Rating AgencyG need to be independent and free from conflicts of interest. Such conflicts of interest include the appearance of being compromised as result of a personal relationship which he or his Close RelativesG have with a Rating SubjectG or a Related PartyG of a Rating SubjectG . The Credit Rating Agency'sG policies and procedures should clearly set out where a personal relationship should be considered to create the potential for any real or apparent conflicts of interest and therefore be subject to the conflicts of interest provisions.

            [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

        • COB 8.6.3

          (1) A Credit Rating AgencyG must ensure that its EmployeesG who have a relevant material interest in a Rating SubjectG or its Related PartyG are not involved in the preparation or review of the relevant Credit RatingG or able to influence that process.
          (2) For the purposes of COB Rule 8.6.3(1), an EmployeeG of a Credit Rating AgencyG has a material interest in a Rating SubjectG if the EmployeeG :
          (a) owns a security or a derivative relating to a Rating SubjectG or its Related PartyG , other than holdings in diversified collective investment funds;
          (b) has had a recent employment or other significant business relationship with a Rating SubjectG or its Related PartyG which may cause, or may be perceived as causing, conflicts of interest; or
          (c) has a Close RelativeG who is currently employed by a Rating SubjectG or its Related PartyG .
          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

          • COB 8.6.3 Guidance

            A Credit Rating AgencyG should, where it has a code of conduct/ethics, set out unacceptable conduct for EmployeesG , such as soliciting money, gifts, or favours from anyone with whom the Credit Rating AgencyG does business, or accepting gifts offered in the form of cash or any gifts which are reasonably capable of influencing their opinions or decisions relating to Credit RatingsG . There should also be guidance relating to minimal value of gifts or benefits that may be accepted, and clearance and disclosure procedures relating to such gifts and benefits. See also Guidance 2 under Rule 8.1.1.

            [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

        • COB 8.6.4

          A Credit Rating AgencyG must establish policies and procedures for reviewing the past work of a Rating AnalystG who leaves the employment of the firm to join a Rating SubjectG or its Related PartyG where the Rating AnalystG had been involved in producing or reviewing the Credit RatingG assigned to such Rating SubjectG or Related PartyG .

          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

      • Remuneration and reporting lines

        • Remuneration and reporting lines Guidance

          A Credit Rating AgencyG is required, pursuant to GEN Rule 5.3.31, to have remuneration structures and strategies which, amongst other things, are consistent with the business objectives and identified risk parameters within which the firm operates, and provide for effective alignment of risk outcomes and the roles and functions of the relevant EmployeesG . The requirements set out in this section are designed to augment those remuneration requirements set out in GEN.

          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

        • COB 8.6.5

          A Credit Rating AgencyG must ensure that EmployeesG involved in the provision of Credit RatingsG have reporting lines and remuneration arrangements that are designed to eliminate, or effectively manage, actual and potential conflicts of interest.

          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

        • COB 8.6.6

          A Credit Rating AgencyG must ensure that its EmployeesG are not remunerated, or their performance evaluated, based on the amount of revenue generated or expected from the Credit RatingsG in which the EmployeeG was involved.

          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

          • COB 8.6.6 Guidance

            The EmployeesG intended to be covered by this Rule are Rating AnalystsG and other EmployeesG who are directly involved in producing or reviewing a Credit RatingG , or who are able to influence the credit rating process (such as the senior management).

            [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

        • COB 8.6.7

          A Credit Rating AgencyG must conduct formal and periodic reviews of its remuneration policies and practices relating to EmployeesG who participate in, or who might otherwise have an effect on, the rating process to ensure that those policies and practices do not compromise the objectivity of the Credit Rating ActivitiesG .

          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

    • COB 8.7 Transparency and disclosure

      • Policies and procedures

        • COB 8.7.1

          (1) A Credit Rating AgencyG must, subject to (2), have adequate policies, procedures and controls to ensure that it discloses in a timely manner:
          (a) its Credit RatingsG and any updates thereof;
          (b) its policies for distributing Credit RatingsG and updates thereof;
          (c) the methodologies and models used and key assumptions made in preparing its Credit RatingsG and any updates thereof; and
          (d) any other significant element relating to (a), (b) or (c) above.
          (2) A Credit Rating AgencyG is not required to disclose information where the information is subject to confidentiality requirements.
          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

          • COB 8.7.1 Guidance

            1. The level of detail required in the disclosure of information concerning methodologies, models and key assumptions should be such as to give adequate information to the users of Credit RatingsG to enable them to perform their own due diligence when assessing whether, or to what extent, reliance can be placed on those Credit RatingsG (see COB Rule 8.8.1). Disclosure of information must not, however, reveal confidential information of, or relating to, the Rating SubjectG or its GroupG pursuant to COB Rule 8.9.1.
            2. The information referred to in Guidance No. 1 should generally include the meaning of each rating category and the definition of default or recovery, and the time horizon the Credit Rating AgencyG used when making a Credit RatingG .
            3. A Credit Rating AgencyG should adequately and clearly disclose applicable risks which may affect a Credit RatingG , including a sensitivity analysis of the relevant assumptions and an explanation of how various market developments affect the parameters built into the methodologies and models and may influence or impinge on the Credit RatingG (for example volatility).
            4. If the nature of a Credit RatingG or other circumstances make a historical default rate inappropriate or otherwise likely to mislead investors, the Credit Rating AgencyG should provide appropriate clarifications.
            5. A Credit Rating AgencyG should provide information to assist users of its Credit RatingsG to develop a greater understanding of what a Credit RatingG is, and the limitations on the use of Credit RatingsG with respect to the particular type of financial product that the Credit Rating AgencyG rates. A Credit Rating AgencyG should clearly indicate the attributes and limitations of each Credit RatingG , and the limits to which the firm verifies information provided to it by the Rating SubjectG , its Related PartyG or any external source.
            [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

      • Communication of information

        • COB 8.7.2

          A Credit Rating AgencyG must ensure that its communications relating to its Credit RatingsG , Credit Rating ActivitiesG and its other business are clear, fair and not misleading.

          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

          • COB 8.7.2 Guidance

            1. A Credit Rating AgencyG should, taking into account the nature, scale and complexity of its operations, have a function within its organisation charged with the responsibility for communicating with market participants and the public on questions, concerns or complaints it receives.
            2. The objective of this function should be to help ensure that the Credit Rating Agency'sG officers and management are informed of those issues that such officers and management would reasonably need to be informed about when setting and implementing the Credit Rating Agency'sG systems and controls.
            [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

    • COB 8.8 Disclosure and presentation of Credit Ratings

      • General Disclosure

        • COB 8.8.1

          (1) Subject to the confidentiality requirements applicable to a Credit Rating AgencyG , it must ensure that its Credit RatingsG :
          (a) are published promptly, and as far as practicable, on a nonselective basis and free of charge;
          (b) contain sufficient information to enable users of such Credit RatingsG to understand how the Credit RatingG was reached, including information relating to the methodologies, models and key underlying assumptions used;
          (c) contain a clear statement if the Credit RatingG is initiated by the Credit Rating AgencyG on its own initiative (unsolicited), and information relating to the Credit Rating Agency'sG policy relating to providing unsolicited Credit RatingsG ;
          (d) contain sufficient information about the historical default rates of its Credit RatingsG which are of the same category as the Credit RatingG being published so that interested parties can understand the historical performance of its Credit RatingsG ; and
          (e) include any other information relevant to the particular Credit RatingG , as specified in this module.
          (2) A Credit Rating AgencyG must ensure that any press release which accompanies a Credit RatingG contains key elements underlying the Credit RatingG .
          (3) Before publishing a new or an updated Credit RatingG or withdrawing a Credit RatingG , the Credit Rating AgencyG must, to the extent practicable and appropriate, give to the Rating SubjectG sufficient advance notice to enable that PersonG to draw to the attention of the Credit Rating AgencyG any factual errors on which the Credit Rating AgencyG may have based the relevant Credit RatingG .
          (4) Subject to the confidentiality requirements applicable to a Credit Rating AgencyG , any information which the Credit Rating AgencyG is required to publish pursuant to any Rules must also be made available on the website of the relevant Credit Rating AgencyG .
          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

          • COB 8.8.1 Guidance

            In relation to Rule 8.8.1(3), a Credit Rating AgencyG should inform the Rating SubjectG at least 12 hours before publication of a new Credit RatingG or an update or withdrawal of an existing Credit RatingG of the principal grounds on which such Credit RatingG is based in order to give the Rating SubjectG an opportunity to draw to the attention of the Credit Rating AgencyG any factual errors. The Rating SubjectG has the meaning given to it in GEN Rule 2.27.1(3) and should be read in conjunction with COB Rule 8.1.1(2).

            [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

      • Specific Disclosure - Fees and Charges

        • COB 8.8.2

          (1) A Credit Rating AgencyG must include in its announcements relating to Credit RatingsG and its annual report the general nature of its arrangements relating to fees and charges with, or relating to, the Rating SubjectG including:
          (a) whether the Credit Rating AgencyG or any member of its GroupG receives any fees, charges or other monetary benefits which are unrelated to the provision by the Credit Rating AgencyG of its Credit RatingsG , and if so, the proportion of such benefits relating to the aggregate fees and charges in respect of the provision of Credit RatingsG ; and
          (b) if the Credit Rating AgencyG receives 10% or more of its aggregate annual revenue from a single Rating SubjectG or its Related PartyG , information about that source.
          (2) Where a Credit Rating AgencyG is a member of a GroupG , the 10% aggregate annual income referred to in (1)(b) may be calculated by aggregating the net revenue of all Credit Rating AgenciesG within the GroupG .
          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

      • Specific Disclosure – Structured financial products

        • COB 8.8.3

          A Credit Rating AgencyG must, where the Rating SubjectG is a structured financial product disclose in its Credit RatingsG whether the Relevant InformationG is made publicly available by the Rating SubjectG , or whether all, or some of, such information remains non-public.
          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

          • COB 8.8.3 Guidance

            1. The information which a Credit Rating AgencyG provides relating to structured financial products should include sufficient information such as information relating to the profit and loss statement and cash flow analysis to enable users of the Credit RatingsG to understand the basis of the Credit RatingG . Such information should also include the degree to which, in accordance with its analysis, the Credit RatingG is sensitive to changes in market conditions.
            2. A Credit Rating AgencyG should differentiate ratings of structured finance products from traditional corporate bond ratings, preferably through a different rating symbology. A Credit Rating AgencyG must also disclose how this differentiation operates.
            3. A Credit Rating AgencyG should use reasonable efforts to encourage the Rating SubjectG to disclose to the public all Relevant Information to enable investors and users of the Credit RatingsG to conduct their own due diligence relating to that product.
            [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

    • COB 8.9 Confidential information

      • COB 8.9.1

        A Credit Rating AgencyG must have policies, procedures and controls to ensure that it and its EmployeesG do not:

        (a) use any information given to or obtained by the Credit Rating AgencyG on a confidential basis ("Confidential Information") for a purpose other than that for which it was given or obtained;
        (b) disclose the Confidential InformationG to any other PersonG , except:
        (i) in accordance with (a);
        (ii) with the prior written consent of the PersonG to whom a duty of confidentiality in respect of such Confidential InformationG is owed; or
        (iii) where obliged to do so by any legislation applicable to the Credit Rating AgencyG ; and
        (c) disclose any pending Rating ActionG except to the Rating SubjectG or as agreed with the Rating SubjectG .
        [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

      • COB 8.9.2

        Subject to COB Rule 8.9.1(b), a Credit Rating AgencyG and its EmployeesG must not disclose Confidential InformationG in any manner, including in press releases, through research conferences, to future employers, or in conversations with investors, other issuers, other persons, or by other means.

        [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

      • COB 8.9.3

        A Credit Rating AgencyG must have adequate measures to ensure that it and its EmployeesG :

        (a) take all reasonable steps to protect all property and records belonging to or in possession of the Credit Rating AgencyG against fraud, theft or misuse; and
        (b) do not share Confidential InformationG entrusted to the Credit Rating AgencyG with any third parties except where permitted under COB Rule 8.9.1(b).
        [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]

    • COB 8.10 Record keeping

      • COB 8.10.1

        (1) A Credit Rating AgencyG must, for a minimum of six years, maintain sufficient records in relation to each activity and function of the Credit Rating AgencyG and, where appropriate, audit trails of its Credit Rating ActivitiesG . These must include, where applicable, the following:
        (a) for each Credit RatingG :
        (i) the identity of the Rating AnalystsG participating in the determination of the Credit RatingG ;
        (ii) the identity of the individuals who have approved the Credit RatingG ;
        (iii) information as to whether the Credit RatingG was solicited or unsolicited;
        (iv) information to support the Credit RatingG ;
        (v) the Accounting RecordsG relating to fees and charges received from or in respect of the Rating SubjectG ;
        (vi) the internal records and files, including non-public information and working papers, used to form the basis of any Credit RatingG ; and
        (vii) credit analysis and credit assessment reports including any internal records and non-public information and working papers used to form the basis of the opinions expressed in such reports;
        (b) the Accounting RecordsG relating to fees received from any person in relation to services provided by the Credit Rating AgencyG ;
        (c) the Accounting RecordsG for each subscriber to the Credit Rating Agency'sG services;
        (d) the records documenting the established procedures, methodologies, models and assumptions used by the Credit Rating AgencyG to determine Credit RatingsG ; and
        (e) copies of internal and external communications, including electronic communications, received and sent by the Credit Rating AgencyG and its EmployeesG that relate to Credit Rating ActivitiesG .
        (2) For the purposes of (1), the six year period commences from the date the Credit RatingG is disclosed to the public or distributed by subscription.
        [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]
        [Amended] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

        • COB 8.10.1 Guidance

          1. Information to support a Credit RatingG includes information received from the Rating SubjectG or information obtained through publicly available sources or third parties and verification procedures adopted in relation to information such as those obtained from public sources or third parties. In accordance with GEN Rule 5.3.24, records should be kept in such a manner as to be readily accessible.
          2. Where a Credit RatingG is subject to on-going surveillance and review, the Credit Rating AgencyG should retain records required under COB Rule 8.10.1 in relation to the initial Credit RatingG as well as subsequent updates where such records are required to support the latest Credit RatingG .
          [Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]