The rules for approving credit rating agencies have been changed. The Superintendency of Banks amended Chapter III “Rules for the approval of credit rating agencies for public and private financial sector entities” in Title XVII “Approvals by the Superintendency of Banks”, Book I “Control standards for public and private financial sector entities” in the Codified Rules of the Superintendency of Banks[1]. The main changes are:
- Financial entities are obliged to hire the services of reputable international credit rating agencies approved by the Superintendency of Banks.
- Public and private financial sector entities, the entities in their group, and their subsidiaries and affiliates in Ecuador or abroad must use the same credit rating agency (or its correspondent or associated agency). The analysis and rating will be based on the public and private financial sector entities and must include a section with an analysis of the consolidated information of the financial group.
- The credit rating is understood as an assessment of the financial group’s ability to manage risks, its credit quality and its financial strength, with audited and consolidated financial statements of the group, and the ability of the rated public or private financial entity to comply with its obligations with depositors and the general public in a timely manner.
- To determine the credit rating of a financial entity, credit rating agencies must use rigorous, regular methodologies subject to validation based on experiences and
- The scope of the rating must consider the credit quality and financial strength of the financial entity, as well as the risk ratings of debt securities issued by the entity.
- Public and private financial sector entities and their subsidiaries and affiliates in Ecuador or abroad will be subject to reviews at least every quarter by the authorized rating agencies.
- The credit rating can only be given by legal entities on the “Register of Credit Rating Agencies”.
- The approval of credit rating agencies will be issued by resolution of the Superintendency of Banks published in the Official Gazette.
- Credit rating agencies must have a rating committee which is a technical body with an odd number of at least three members. The agency will inform the Superintendency of Banks of any changes to the composition of its technical and managerial staff.
- Decisions on the credit rating will be made with a majority approval by the rating committee.
- The board of directors of the regulated entities will be responsible for appointing the rating agency from
the list of agencies approved by the Superintendency of Banks, relieving it of its duties and appointing its replacement within 30 days of its permanent absence. - The rating agency will be hired for a one-year period and may provide its services to a public or private financial entity and its subsidiaries or affiliates in Ecuador or abroad for five consecutive periods. Once the fifth period has ended, the Superintendency of Banks will analyze whether it is in the public interest for the rating agency to remain with the entity.
- Credit rating agencies will submit the rating report on the audited balance sheets as at December 31 of the previous year to the Superintendency of Banks by April 30 each year. The financial entity being rated must make its balance sheets available to the credit rating agency by February 28 each year.
- Credit rating agencies will have access at all times to the accounting records of the entity being rated.
- For global ratings of issuing financial entities, credit rating agencies will use the following scale:
- AAA – The financial entity’s position is very strong, and it has an excellent track record of profitability.
- AA – The entity is financially very solid; it has a good performance history and does not seem to have notable weaknesses.
- A – The entity is strong; it has a solid financial record and is well received in its natural money markets.
- BBB – The entity clearly has good credit, although some minor obstacles are evident.
- BB – The entity enjoys good credit in the market with no serious deficiencies, although the financial figures reveal at least one fundamental area of concern which prevents it from achieving a higher rating.
- B – Although this rating denotes acceptable credit, the entity has some significant deficiencies.
- C – The financial figures of the entity suggest obvious deficiencies, very likely related to the quality of the assets and/or a poorly structured balance sheet.
- D – The entity has considerable deficiencies which likely include funding or liquidity difficulties.
- E – The entity faces very serious problems and therefore there is doubt as to whether it can continue to be viable without any form of external help or other assistance.
- The management of a public and private financial sector entity may challenge the rating given.
- The credit rating agencies which are approved to provide their services to entities supervised by the Superintendency of Banks are subject to the following prohibitions:
- Must not provide services to the rated entity or work with it during the year after its functions have ended, in such a way that its independence can be presumed to be affected.
- Must not delegate or subcontract functions which are related to the rating process.
- Must not be part of the rated entity’s management bodies.
- Must not represent the shareholders or members of the rated entity in general shareholders’ meetings or board meetings.
- Must not disclose the content of the rating reports or disclose information on the rated entity’s business affairs to parties unrelated to control functions.
- Credit rating agencies and their directors, legal representatives, members of the rating committee, officers, advisors, and support staff are obligated to keep confidential the information provided by the rated entities.
- Credit rating agencies must inform the Superintendency of Banks at least two days in advance of the date, time and location of the meeting of the rating committee. The Superintendency of Banks may designate a representative to attend the meetings as an observer.
[1] Resolution No. SB-2020-0574 published in Official Gazette 241 on July 8, 2020.
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