The Financial Regulatory Authority (FRA) issued resolution No. 151 for 2023 regarding criteria for obtaining a licence for credit rating of securities.
The decision, issued on 22 August, provides those interested a period of three months from the date of publication to submit their applications to the Authority. The deadline may be extended after the submitted applications are examined.
The decision sets 5 criteria for obtaining a licence for credit rating of securities:
First criterion: Technical requirements which consists of three parts. First, a certificate from an international credit rating agency that says the company will adhere to a business model similar to its business model, and it is preferable that the certificate be from a major agency. If not, the application shall be accompanied by evidence of the existence of a technical partner who has a licence from internationally accredited bodies in the same business. Second, a draft of the credit rating methodologies to be followed. Third, a report of technical and administrative cadres who will carry out the credit rating activities and their competencies and experiences.
Second criterion: Ownership structure which includes the shareholding percentages of Egyptian and foreign financial institutions and the shareholding percentages of international agencies specialized in the field of credit rating.
Third criterion: Policies and procedures that ensure independence, objectivity, and internal control.
Fourth criterion: Issued and paid-up capital must be EGP 50m or more, or its equivalent in foreign currencies.
Fifth criterion: Results of technical and economic feasibility study of the company.
Mohamed Farid, Chairperson of the Financial Regulatory Authority, said that the Authority constantly studies and analyses the market needs to issue the necessary regulatory controls to achieve sustainability of the non-banking financial sector.
Farid pointed out that the FRA realized that the Egyptian stock market needs another company to practice credit rating activities, along with the current company, adding that licensing more than one company working in the field of credit rating will enhance the capabilities of the financial sector in general, and increase competition in a way that serves the interests of dealers, including institutions, markets, and customers, in addition to allowing dealing with more than one alternative, and in light of the growth in the volume of bond issuances, especially securitization bonds.
He explained that the licensing criteria aims to achieve transparency, as the selection criteria include all the details of the comparison between the applicants.
Farid stressed that the conditions and criteria are objective and have been prepared with the guidance of international practices in this field with the aim of classifying the applications for obtaining this licence and selecting the application that achieves the highest degree of compatibility with these criteria.
He added that the credit rating agencies play a vital role in the stock markets, and contribute to the efficient capital allocation to serve investment opportunities according to their return and risk, because they evaluate and classify the quality of the various securities traded in the financial markets.
