The Capital Markets (Credit Rating Agencies) Regulations

Section 1. Citation Section These Regulations may be cited as the Capital Markets (Credit Rating Agencies) Regulations, 2023.

Section 2. Interpretation Section In these Regulations, unless the context otherwise requires— "client" means a person who engages the services of a credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") for the purposes of a rating ("an opinion regarding a security or an issuer expressed in the form of standard symbols or in any other standardised manner, assigned by a credit rating agency;") ; "credit rating agency" means an entity which is in, or proposes to engage in, the business of rating ("an opinion regarding a security or an issuer expressed in the form of standard symbols or in any other standardised manner, assigned by a credit rating agency;") of securities and issuers; "credit rating methodology" means the procedure by which a credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") determines credit ratings including the information that must be considered or analysed to determine a credit rating ("an opinion regarding a security or an issuer expressed in the form of standard symbols or in any other standardised manner, assigned by a...

Section 3. Scope Section These Regulations shall apply to any entity that intends to assign a rating ("an opinion regarding a security or an issuer expressed in the form of standard symbols or in any other standardised manner, assigned by a credit rating agency;") to a security issued in Kenya or an issuer ("an entity by which a security has been issued, guaranteed or by which the credit underlying the security has otherwise been supported and includes the corporate parent or majority-owned subsidiary of an issuer;") operating in Kenya.

Section 4. Application for approval Section 4(1) An entity which intends to undertake business as a credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") in Kenya shall apply to the Authority for approval to carry on such business in the form set out in the First Schedule. Section 4(2) An entity applying for approval under subregulation (1) shall pay the application fee specified in the Second Schedule.

Section 5. Eligibility of applicants Section is a body corporate;

Section 6. Recognition of foreign applicants Section 6(1) A foreign applicant ("an entity that is incorporated or registered outside Kenya that seeks to be recognised in accordance with these Regulations;") that seeks to carry on the business of rating ("an opinion regarding a security or an issuer expressed in the form of standard symbols or in any other standardised manner, assigned by a credit rating agency;") in Kenya shall apply in writing to the Authority for a certificate of recognition. Section 6(2)(a) authorisation by the relevant regulator in the foreign applicant ("an entity that is incorporated or registered outside Kenya that seeks to be recognised in accordance with these Regulations;") 's jurisdiction that the foreign applicant ("an entity that is incorporated or registered outside Kenya that seeks to be recognised in accordance with these Regulations;") is a credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") in the form of a certified copy of a valid licence or approval to carry on the business of a credit rating agency ("an entity which is in, or proposes to engage in, the business of rating o...

Section 7. Furnishing of information, clarifications and personal representations Section 7(1) The Authority may require an applicant to furnish such further information as may be necessary for the purposes of processing the application. Section 7(2) The Authority may ask the applicant or the applicant's authorised representative to appear before the Authority in person in connection with the application for grant of approval.

Section 8. Grant of approval or certificate of recognition Section 8(1) The Authority, on being satisfied that an applicant meets all the requirements for approval or recognition, shall grant approval or a certificate of recognition to carry on business in Kenya as a credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") . Section 8(2) The approval or certificate granted under subregulation (1) shall be valid unless it is suspended or cancelled by the Authority.

Section 9. Refusal to grant approval or certificate of recognition Section 9(1) Where the Authority determines that approval or recognition should not be granted to an applicant, the Authority may, after giving the applicant a reasonable opportunity to be heard, refuse to grant the approval or certificate of recognition. Section 9(2) The decision of the Authority under subregulation (1) shall be communicated to the applicant in writing within thirty days after the decision has been made stating the grounds for the refusal to grant the approval or certificate of recognition. Section 9(3) An applicant that is aggrieved by the decision of the Authority to refuse to grant the approval or certificate of recognition may appeal against the decision to the Capital Markets Tribunal.

Section 10. Notification of changes Section Where a credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") intends to change its establishment status or constitution, it shall notify the Authority in writing of the intended changes.

Section 11. Conflicts of interest Section 11(1) An entity carrying on business as a credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") shall operationally, legally and, where practicable, physically separate its credit rating ("an opinion regarding a security or an issuer expressed in the form of standard symbols or in any other standardised manner, assigned by a credit rating agency;") business from any other business of the entity that may resent a conflict of interest. Section 11(2) Where the other business of the entity does not present a conflict of interest with the entity's credit rating ("an opinion regarding a security or an issuer expressed in the form of standard symbols or in any other standardised manner, assigned by a credit rating agency;") business, the entity shall establish, maintain, document and enforce policies, procedures and controls for the minimisation of conflicts of interest shall arise between that other business and the credit rating ("an opinion regarding a security or an issuer expressed in the form of standard symbols or in any other standardised manner, assigned by a credit rat...

Section 12. Agreements with clients Section the rights and liabilities of each party to the agreement in respect of the rating ("an opinion regarding a security or an issuer expressed in the form of standard symbols or in any other standardised manner, assigned by a credit rating agency;") of the security or issuer ("an entity by which a security has been issued, guaranteed or by which the credit underlying the security has otherwise been supported and includes the corporate parent or majority-owned subsidiary of an issuer;") ;

Section 13. Rating process Section specify the rating ("an opinion regarding a security or an issuer expressed in the form of standard symbols or in any other standardised manner, assigned by a credit rating agency;") process;

Section 14. Monitoring of ratings Section continuously and at least once in each year, monitor and review the rating ("an opinion regarding a security or an issuer expressed in the form of standard symbols or in any other standardised manner, assigned by a credit rating agency;") of the security or issuer ("an entity by which a security has been issued, guaranteed or by which the credit underlying the security has otherwise been supported and includes the corporate parent or majority-owned subsidiary of an issuer;") of a security during the tenure of the security or issuer ("an entity by which a security has been issued, guaranteed or by which the credit underlying the security has otherwise been supported and includes the corporate parent or majority-owned subsidiary of an issuer;") rated by the credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") , unless the rating ("an opinion regarding a security or an issuer expressed in the form of standard symbols or in any other standardised manner, assigned by a credit rating agency;") has been withdrawn;

Section 15. Reviews ofrating Section 15(1) A credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") shall continuously and at least once in each year monitor all its published ratings and annual rating ("an opinion regarding a security or an issuer expressed in the form of standard symbols or in any other standardised manner, assigned by a credit rating agency;") reviews during the tenure of each security it has rated, unless the rating ("an opinion regarding a security or an issuer expressed in the form of standard symbols or in any other standardised manner, assigned by a credit rating agency;") is withdrawn. Section 15(2) If a client ("a person who engages the services of a credit rating agency for the purposes of a rating;") fails to co-operate with the credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") , including by failing to provide the information required to conduct a review of a security or an issuer ("an entity by which a security has been issued, guaranteed or by which the credit underlying the security has otherwise been support...

Section 16. Procedures to prevent insider trading and market abuse by employees Section Each credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") shall establish appropriate procedures and systems to detect and prevent the trading by its employees in the securities of the credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") 's clients in order to prevent insider trading and market abuse.

Section 17. Disclosure ofratingdefinitions and rationale Section make public the definitions of any rating ("an opinion regarding a security or an issuer expressed in the form of standard symbols or in any other standardised manner, assigned by a credit rating agency;") and the symbol of the rating ("an opinion regarding a security or an issuer expressed in the form of standard symbols or in any other standardised manner, assigned by a credit rating agency;") it has assigned to a security or issuer ("an entity by which a security has been issued, guaranteed or by which the credit underlying the security has otherwise been supported and includes the corporate parent or majority-owned subsidiary of an issuer;") of a security;

Section 18. Submission of information to the Authority Section 18(1) The Authority may, in writing, request a credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") to provide information relating to its activities, including reports relating to its activities. Section 18(2) The credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") shall furnish the Authority with the information requested under subregulation (1) within the period specified in the request and if no such period is specified, within a reasonable time. Section 18(3) Each credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") shall, within four months after the end of the financial year, furnish the Authority with copies of the credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") 's audited financial accounts. Section 18(4)(a) the rating ("an opinion regarding a security or an issuer expressed in the form of standard symbols or in any other stan...

Section 19. Compliance guidelines, directives, circular and instructions Section Each credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") shall comply with such guidelines, directives, circulars and instructions issued by the Authority in respect of ratings.

Section 20. Compliance officers. Section 20(1) Each credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") shall appoint a compliance officer who shall be responsible for monitoring compliance with the Act, the Regulations and any guidelines, directives, circulars and instructions issued by the Authority in respect of ratings. Section 20(2) A compliance officer appointed under subregulation (1) shall immediately and independently report to the Authority any non­-compliance by the credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") with the Act, these Regulations or guidelines, directives, circulars and instructions issued by the Authority in respect of ratings.

Section 21. Appointment of auditors Section A credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") shall not appoint or dismiss its auditor unless it has notified the Authority in writing at least one month before the intended appointment or dismissal.

Section 22. Books of account and records. Section a copy of the financial statements for each financial year;

Section 23. Annual report Section the total ratings conducted in Kenya in that year;

Section 24. Auditors' report Section Each credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") shall, within two months after the date of the auditor's report, take steps to rectify the deficiencies, of any, stated in the auditor's report.

Section 25. Confidentiality Section Each credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") shall maintain the confidentiality of information furnished to it by a client ("a person who engages the services of a credit rating agency for the purposes of a rating;") and shall not disclose the information to any other person except where such disclosure is required or permitted by any law for the time being in force.

Section 26. Creditratingagency not to rate its own securities Section A credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") shall not assign a rating ("an opinion regarding a security or an issuer expressed in the form of standard symbols or in any other standardised manner, assigned by a credit rating agency;") to a security issued by its associate or subsidiary if the credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") or its rating committee ("a committee constituted by a credit rating agency to assign a rating to a security; and") has a chairperson, director or employee who is also the chairperson, director or employee of such associate or subsidiary.

Section 27. Conduct of business Section the Regulations are consistent with these Regulations; and

Section 28. Inspections and investigations Section 28(1) The Authority may appoint an officer of the Authority to inspect or investigate the books of account, records or documents of a credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") for any of the reasons specified in subregulation (2) . Section 28(2)(a) to ascertain whether the books of account, records or documents of the credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") have been properly kept and maintained; Section 28(2)(b) to ascertain whether the credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") has complied with the Act and these Regulations; Section 28(2)(c) to investigate may complaint against the credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") by an investor, client ("a person who engages the services of a credit rating agency for the purposes of a rating;") or any other person on any matter having a bearing on the activities...

Section 29. Notice before inspections or investigations Section 29(1) Before initiating an inspection or investigation under regulation 28 , the Authority shall give ten days written notice to the credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") of the intention to conduct the inspection or investigation. Section 29(2) Without prejudice to subregulation (1) , where the Authority is satisfied that, in the interests of investors, no notice should be given of the intention to conduct an inspection or investigation, the Authority may direct, in writing, that the inspection or investigation be conducted without giving notice.

Section 30. Obligations of creditratingagencies during inspections or investigations Section 30(1) A credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") whose books of account, records or documents are being inspected or investigated, and every director, officer and employee of the credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") , shall furnish to the officer of the Authority or independent expert appointed by the Authority for that purpose such books of account, records or documents in the credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") 's custody relating to the credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") 's rating ("an opinion regarding a security or an issuer expressed in the form of standard symbols or in any other standardised manner, assigned by a credit rating agency;") activities within ten days or such reasonable period as may be specified by the officer of the Authority or...

Section 31. Submission of reports to the Authority Section The officer of the Authority or independent expert who conducts an inspection or investigation of the books of account, records or documents of a credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") shall within thirty days after the completion of the inspection or investigation, submit a report thereon to the Authority: Provided that, on the direction of the Authority, the officer of the Authority or independent expert may submit an interim report on the inspection or investigation.

Section 32. Action on inspection or investigation report Section The Authority shall, after the consideration of an inspection or investigation report, take such action as may be appropriate in accordance with the Act and these Regulations.

Section 33. Penalty Section A credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") that contravenes any of the provisions of these Regulations shall be liable, on conviction, to the penalties prescribed under the Act.

Section 34. Transitions and savings Section 34(1) A credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") that had been approved or recognised by the Authority before the coming into operation of these Regulations shall be deemed to have been approved or recognised in accordance with these Regulations. Section 34(2) A credit rating agency ("an entity which is in, or proposes to engage in, the business of rating of securities and issuers;") that had been approved or recognised by the Authority before the coming into operation of these Regulations shall, within six months after the coming into operation of these Regulations, comply fully with these Regulations.