Guidelines for Credit Rating Agencies in Ghana
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Guidelines for Credit Rating Agencies in Ghana

Players within the financial market space rely on credible ratings to make financial decisions. It is therefore important that Credit Rating Agencies (CRAs) ensure that adequate personnel and resources are allocated to ratings, and CRAs use care and professional judgment to maintain independence and objectivity.

1. What are Credit Rating Agencies?

CRAs are companies that assess the financial strength of issuers of debt securities, particularly their ability to meet the interest and principal payments and assign ratings to them. They assess a borrower’s financial strength to meet general or specific debt repayment obligations (creditworthiness). Their quantified assessments assist retail and institutional investors in making informed decisions relating to issuers of bonds, debt instruments and fixed-income securities.

2. How are CRAs regulated in Ghana?

The Securities and Exchange Commission (SEC), established by the Securities Industry Act, 2016 (Act 929), regulates and promotes the development of an efficient, fair and transparent securities market to protect investors and ensure integrity.
In line with this, SEC regulates CRAs in Ghana. The Securities Industry (Credit Rating Agencies) Guidelines 2021 and the Securities Industry (Licensing) Guidelines 2020 require a CRA proposed to operate in Ghana to undergo an initial registration and licensing by SEC.

3. What criteria must be met by CRAs?

SEC evaluates the reputation, character, financial integrity and reliability of a CRA, its directors, chief executive, management and all other principal officers, and any substantial shareholder of the company. A CRA proposed to operate in Ghana must meet the following criteria:
• At least half of the directors of the CRA and every member of its Rating Committee should have experience and qualifications relevant to credit rating and analysis or a comprehensive understanding of financial markets.
• A minimum of two thirds of the directors must be resident in Ghana.
• The company must be deemed as fit and proper with regards to its financial status or solvency; its experience in credit rating and analysis, ability to carry on credit rating with competence, honesty and fairness.
• The company should not have taken part in any business practice proved as fraudulent, prejudicial or otherwise improper or which otherwise discredits its methods of conducting business.
• The CRA should have effective internal control procedures and risk management systems established to ensure its compliance with all applicable regulatory requirements; including all corporate governance requirements as may be specified by the SEC.

4. What are the requirements for a CRA license?

The application for a license is made to SEC by a representative of the CRA (the “applicant”) proposed to operate in Ghana. The applicant must be incorporated in Ghana under the Companies Act, 2019 (Act 992) or the Incorporated Private Partnerships Act 1962 (Act 152). Among other relevant documents, the application must be accompanied by the Certificate of Incorporation or Partnership Agreement of the CRA. The applicant must have met its minimum paid-up capital of GHS 1,000.000.00.
A CRA license is to be renewed annually, subject to meeting licensing requirements. The application for renewal of a license must be made at least three months before the expiry of the license .

5. Are foreign CRAs allowed to issue ratings in Ghana?

Foreign CRAs are allowed to issue ratings for Ghanaian securities and/or entities except securities issued by the Government of Ghana on condition that they are registered by SEC.
The following requirements must be met for the registration of a foreign CRA in Ghana .
a) It must have established a branch or subsidiary in Ghana.
b) The branch or subsidiary in Ghana must follow the appropriate standards on the operation of the CRA imposed on the foreign company by external regulation and which is adequately enforced by the home regulator. In circumstances of a conflict however, the laws of Ghana take precedence over the external regulation..
c) The company can apply to SEC for registration on condition that:
• it has given notice to its home regulator of its intention to establish a branch in Ghana; and
• it will not violate any laws or regulations which it is subject to or any relevant requirements imposed by its home regulator.

6. What is the reporting regime for CRAs?

CRAs are required to file reports to SEC on an annual and semi-annual basis. These reports must provide a list of all issuers on rating watch and/or in transition and subsequent rating actions taken, and on all rating reviews which have taken place during the relevant period.
The role of regulatory bodies and regimes in assessing and monitoring the credibility of CRAs cannot be over-emphasized. They remain the gatekeepers, ensuring compliance with accepted international standards of credit rating.

7. How are CRAs required to avoid conflict of interest in their operation?

As part of good corporate governance, the law requires CRAs to use care and professional judgment to maintain both the substance and appearance of independence and objectivity of the rating process. CRAs are prohibited from advising issuers on how to structure products in order to achieve a pre-determined rating. They are also barred from putting improper pressure on issuers to do or refrain from doing something; or delaying or refraining from issuing a rating because of an assessment of the potential effect on that CRA, a rated entity, an investor, or other market operator.

8. Are there transitional processes for already existing CRAs?

Unlike new CRAs who are required to be in full compliance with the new guidelines as soon as they are granted licence, already existing CRAs have a grace period of one year beginning from 1st November, 2021, within which they must fully comply with the new guidelines.