The South African branch of S&P Global Ratings Europe has undertaken to ensure that will announce when it has withdrawn a credit rating after the FSCA found it contravened legislation designed to ensure transparency around ratings.
S&P Global Ratings signed the enforceable undertaking with the Authority in October.
According to the document, the FSCA conducted a supervisory on-site inspection on S&P’s South African branch from 14 to 16 November 2022. The inspection covered the period from 1 October 2021 to 30 September 2022.
The Authority noted that S&P withdrew the issuer credit rating assigned to a particular company in August 2022. S&P reported there was “a lack of engagement and limited information from the company to continue surveillance and monitoring the assigned credit rating”.
The company in question was not named.
The inspection determined that S&P did not publish the withdrawal of the credit rating, in contravention of section 10(1)(a) of Credit Rating Services (CRS) Act, and rules 8(5), 8(6), and 8(7) of the Credit Rating Agency Rules (Board Notice 228 of 2013).
Section 10(1)(a) of the CRS Act stipulates that “a credit rating agency must publish any credit rating or any decision to discontinue a credit rating impartially and timeously”.
Rules 8(5), 8(6), and 8(7) of Board Notice 228 state that where a credit rating agency (CRA) makes its ratings available to the public, the CRA must publicly announce if it discontinues rating a rated entity, security, or financial instrument and give reasons for the decision. Where a CRA’s ratings are provided only to its subscribers, the CRA must announce to its subscribers if it discontinues rating a rated entity, security, or financial instrument. Future publications of the discontinued rating must indicate the date the rating was last updated and the fact that the rating is discontinued.
The non-publication of the withdrawal was also a breach of S&P’s “Surveillance and Withdrawal Policy”, which requires that when S&P withdraws or suspends a credit rating, it generally issues a notice in the same way the original credit rating was issued. For a public credit rating, S&P will post the notice on its website. For a private credit rating, S&P will notify the party that requested the credit rating or post a notice through the secured website established for the rating.
The FSCA said the purpose of the disclosure requirements in the CRS Act and Board Notice 228 is to ensure a sufficient level of transparency around the characteristics of the credit ratings issued by CRAs. This transparency enables the user of the credit rating to understand the main reasons for the credit rating, any limits or uncertainties underpinning the credit rating, as well as where further information can be found to facilitate its own due diligence.
In terms of the agreement with the FSCA, S&P undertook to ensure it announces publicly or to its subscribers if it withdraws or discontinues rating a rated entity and provides reasons for the discontinuation or withdrawal decision, per the CRS Act and Board Notice 228.
The Authority cautioned S&P that any future infringement of a similar nature will result in the FSCA imposing an administrative penalty.
