i the pakistan credit rating agency limited · 2018-12-20 · i the pakistan credit rating agency...

The Pakistan Credit Rating Agency Limited

TREATMENT OF THE CONFIDENTIAL

INFORMATION

PACRA POLICY Page 1 of 5

December 2018 www.pacra.com

1. PACRA

DEFINITION

1.1 PACRA becomes bound and binds all receiving parties by Non-

Disclosure Agreements to restrict the use of Confidential Information solely to the

purpose for which it has been solicited and disclosed.

What constitutes ‘Confidential Information’ for PACRA?

All non-public Information provided by the Client

Deliberations supporting a Rating Action

Rating Action prior to Public Dissemination (Exception: Sharing rating and

Rating Action with the Client during the Pre-publication Issuer Review1)

Criteria / methodology change prior to Public Dissemination

Proprietary models / programs, product designs, business plans

All personal Employee data

Confidentiality status elapses as soon as such information is Publicly

Disseminated

2 SAFEGUARDS 2.1 PACRA has put in place following measures to safeguard Confidential

Information:

2.1.1 Segregation of Functions: PACRA has an organizational

structure with separate divisions - ratings, criteria group, Marketing &

business development, management information technology, finance, IT, non-

rating business. Each divisional-head takes reasonable measures to ensure

that Confidential Information relevant to that particular division is protected.

2.1.2 Restrictions on Securities Investment & Trading: PACRA

doesn’t hold or transact in trading instruments presenting a conflict of

interest. Restrictions described in detail in PACRA Policy for Investment &

Trading in Securities Policy are imposed so that Employees and other

relevant parties do not use Confidential Information for procuring personal

benefits.

2.1.3 Firewalls: PACRA ensures strong firewalls to prevent disclosure

or use of Confidential Information by related parties or their personnel in

cases where PACRA is a parent, subsidiary, joint venture partner or Affiliate

of any organization that might benefit from the Confidential Information

available with PACRA:

1 Business firewalls: PACRA has in place the following business

firewalls:+

a. Ratings Business: PACRA refrains from provide rating services to:

i. A company where any of its director (save such directors

nominated by the Federal Government / Provincial Government /

an institution which is directly or indirectly owned or controlled

by the Federal / Provincial Government) is a substantial

shareholder or is in any way interested in such company | an

undertaking to the effect of absence of conflict of interest with

1 Pre-publication Issuer Review is part of PACRA’s rating process whereby PACRA furnishes a copy of the Rating Report to

the Client before Public Dissemination and publication of the report. The purpose of this process is to provide an

opportunity to the Client to pinpoint any factual errors or any inadvertent disclosure of Confidential Information



INFORMATION



any PACRA client is furnished by directors before each board

meeting

ii. A company where a person directly or indirectly, holding more

than 10% of share capital of PACRA also holds directly or

indirectly 10% or more of the share capital

iii. Its own instruments

iv. Its associated companies and undertakings or the instruments

issued by them

b. Non-Ratings Business: PACRA shall refrains from:

i Providing consultancy/advisory services or other services to any

of its customers or to any of its customers’ associated companies

and associated undertakings that is being rated or has been rated

by it during the preceding three years unless it has adequate

mechanism in place ensuring that provision of such services does

not lead to a conflict of interest situation with its rating activities

2 Organizational firewalls:

i. Data firewalls: Reasonable physical and electronic data access

restrictions are in place to channelize data and information flow

only to legitimate users.

ii. Ratings firewalls:

Directors and shareholders have no involvement in the

rating process. Directors provide an undertaking to this

effect at the time of appointment.

Ratings function is entirely independent of the

management. The chief executive officer may be part of

the rating committee subject to the condition that his

shareholding, directly or indirectly, is less than 5%.

No such individual is appointed as a member of a rating

committee who has or is perceived to have a business

development; or who initiates or participates in a

discussion regarding fee or payment.

2.1.4 Rating & Non-Rating Business: Confidential Information

obtained or developed in the course of the rating process may be relevant to

non-rating services provided by PACRA or its associated Companies. This is

especially relevant to the provision of non-rating products and services. In

this context, Confidential Information safeguards are:

i. Secondment Arrangements: Any Secondment of human resources

from PACRA Ratings Employees to a non-rating function or

Associated Company and vice versa is governed by the following

policies:

No transfer of Confidential Information: The Secondment

arrangement is meant to capitalize upon the human resource

expertise across rating / non-rating departments and

Associated Companies. It does not breach any Non-

Disclosure Agreement and no flow of Confidential

Information occurs to facilitate information gathering,

execution and completion of the underlying assignment.



INFORMATION



Abstinence Period: No Rating Employee / Non-rating

Employee /and Non-rating Associated Company Employee

would work on any non-rating / rating assignment concerning

a Client, who, within the past one-and-a-half-years (1.5)

years, has worked on that same Client.

3 AUTHORIZED USE

OF CONFIDENTIAL

INFORMATION

3.1 The use of Confidential Information would only be for purposes in

connection with the rating process and related rating activities. Hence, PACRA

reserves the right to use Confidential Information in the manner described below:

Use confidential information, or information and analysis derived

therefrom, without seeking prior Client approval, in publishing any rating

opinion and sector study which incorporates Confidential Information; as

long as such information has been disclosed in such a way that it is no

longer identified as tied to any individual Client

Disclose Confidential Information to External RC members / external

sector experts / consultants bound by Non-Disclosure Agreement (NDA)

to assist in any aspect of the rating process

4 COMPELLED

DISCLOSURE OF

CONFIDENTIAL

INFORMATION

4.1 PACRA is committed to cooperate fully with appropriate investigations

of the Government of Pakistan, state departments / agencies, judicial inquiries and

regulatory requests.

4.2 Notwithstanding anything in the foregoing to the contrary, PACRA also

has legitimate and important interests to protect. Most notably, PACRA is bound

by Non-Disclosure Agreements to its Clients (through its Rating Agreement),

whereby PACRA undertakes that all information, which the Client does not desire

to publicize (barring information that PACRA considers vital to disclose in public

interest and that the Client may ask to conceal), will be kept confidential and will

be used only in the rating process and internal analysis. Additionally, in certain

instances, the Client instructs PACRA (as at the time of the Pre-publication Issuer

review) to refrain from disclosing certain explicit Confidential Information.

4.3 However, in case any Confidential Information is requested by the

Regulators or any parties with an independent legal right to receive such

information, PACRA makes such disclosure without liability.

5 SELECTIVE

DISCLOSURE OF

CONFIDENTIAL

INFORMATION

5.1 Selective Disclosure creates an uneven playing field for market

participants, allowing some to profit from Confidential Information before others.

PACRA explicitly prohibits Selective Disclosure. In case it comes to PACRA’s

knowledge that a Selective Disclosure of the rating opinion has occurred by the

Client, PACRA, if required, promptly makes a Public Dissemination of the rating

opinion, thus disclosed.

6 NON-DISCLOSURE

AGREEMENT

6.1 All parties disclosing / receiving Confidential Information to / from

PACRA sign Non-Disclosure Agreements. This agreement remains binding on

both the disclosing and the receiving party for the entire duration of the

agreement, mentioned therein.

The Employee Non-Disclosure Agreement has been designed as per

Annexure I of the Securities and Exchange Commission of Pakistan’s



INFORMATION



(SECP) Credit Rating Companies Regulations, 2016 and is titled “Non-

Disclosure Agreement” (NDA)

6.1.1 If any customization / modification is required in Non-Disclosure

Agreement, it shall be made in due consultation with the Competent Authority OR

in response to any modification / revision put forth by SECP.

7 TASKS 7.1 All Employees are required to sign a Non-Disclosure Agreement upon

entry to PACRA and periodically thereafter.

8 POLICY

ADMINISTRATION

8.1 Interpretation: Competent Authority is responsible for interpreting and

applying the Policy to specific situations when questions arise. Competent

Authority is designated on a case-to-case basis based on relevant competency.

8.2 Review: This Policy is subject to review as follows:

Reviewer Scope Frequency Regulation

Competent

Authority

Appropriateness

& sufficiency Annual

Chapter III | 11-B-

(k)

Internal Audit Actual vs. Policy Annual Chapter III | 11-B-

(l)

Expert Comprehensive Every three

(3) years Chapter III | 11-A-

(b)

8.3 Policy Approval: This Policy is required to be approved by the board of

directors.

8.4 Investigations of Suspected Violations: All reported violations shall be

promptly investigated and treated confidentially to the extent reasonably possible.

8.5 Disciplinary Protocol: Compliance with all Codes of Conduct and

PACRA Policies, including this Policy, is a condition for employment.

Compliance with the Codes and PACRA Policies shall be monitored on periodic

basis:

Those who come within the bounds of this Policy shall cooperate fully to

provide truthful, accurate information

The current version of this Policy is available on the website:

www.pacra.com

8 REGULATORY

REQUIREMENTS

8.1 PACRA’s compliance to SECP’s regulatory requirements in terms of

Treatment of the Confidential Information Policy is as follows:

PACRA’s Compliance for Treatment of Confidential Information Policy

SECP’s Credit Rating Companies Regulations, 2016

SECP Regulation Code Clause

Regulation Chapter III | 10-(5): No director, officer or

employee of the credit rating company shall communicate

the information, acquired by him for use for rating

purposes, to any other person except where required under

Section 4

http://www.pacra.com/



INFORMATION



law to do so.

Regulation Chapter III | 10-7-(b): A credit rating

company shall not hold or transact in trading instruments

presenting a conflict of interest with credit rating company;

Section 2

Regulation Chapter III | 10-7-(d): A credit rating

company shall not disclose or discuss with outside parties

or make improper use of the non-public information which

has come to its knowledge during business relationship

with the customer;

Section 3

Regulation Chapter III | 11-A-(m): A credit rating

company shall ensure strong firewalls to prevent disclosure

or use of the said non-public information by the related

parties or their personnel in cases where a credit rating

company is a parent, subsidiary, joint venture partner or

affiliate of any organization that might benefit from the

non-public information available with the credit rating

company;

Section 2 | Clause 2.1.3

Regulation Chapter III | 11-A-(n): A credit rating

company shall formulate necessary code of conduct for its

employees regarding handling of the non-public

information which should contain as a minimum the

requirements set out in Annexure I;

Section of the Employee

Code of Conduct

Regulation Chapter III | 11-A-(o): A credit rating

company shall, except as required under these regulations

and without obtaining prior written approval of its

customers, not share with or disclose to media or any other

party including its other customers, any confidential

information about its customers, which has come to its

knowledge in the course of the rating process;

Section 5 and Section 6

Regulation Chapter III | 12-2-(a): The credit rating

company shall ensure that directors on its board shall not be

involved in the rating process and shall provide an

undertaking to this effect at the time of appointment as

directors on the board:

Provided that CEO being deemed director, may be part of

the rating committee subject to the condition that his

shareholding, directly or indirectly, in the credit rating

company is less than 5% of the share capital of the

company;

Section 2 | Clause 2.1.3

Regulation Chapter III | 12-2-(d): The credit rating

company shall ensure that it shall not provide

consultancy/advisory services or other services to any of its

customers or to any of its customers’ associated companies

and associated undertakings that is being rated or has been

rated by it during the preceding three years unless it has

adequate mechanism in place ensuring that provision of

such services does not lead to a conflict of interest situation

with its rating activities;

Clause 2.1.3-1-b-i


ANNEXURE I | TREATMENT OF THE

CONFIDENTIAL INFORMATION

ANNEXURE Page 1 of 5


DEFINED TERMS

Associated

Company

“Associated companies” and “associated undertakings” as defined in The Companies Act

(2017), Part 1, Clause 2-(4):

“ ‘associated companies’ and ‘associated undertakings’ - mean any two or more

companies or undertakings, or a company and an undertaking, interconnected with each

other in the following manner, namely:—

(a) if a person who is owner or a partner or director of a company or undertaking, or who,

directly or indirectly, holds or controls shares carrying not less than twenty percent of the

voting power in such company or undertaking, is also the owner or partner or director of

another company or undertaking, or directly or indirectly, holds or controls shares

carrying not less than twenty percent of the voting power in that company or undertaking;

or

(b) if the companies or undertakings are under common management or control or one is

the subsidiary of another; ”

Client An entity / issuer, whose rating assignment is to be undertaken, having signed a Rating

Agreement with PACRA

Codes of

Conduct Sets of Standards (Do’s & Don’ts) governing day-to-day conduct

Competent

Authority A designated authority considered to possess the requisite expertise / knowledge

Compliance

Officer

An officer designated by PACRA as Compliance officer | Credit Rating Companies

Regulations, 2016, Regulation 11-F

Confidential

Information

PACRA classifies information as Public or Confidential / non-public.

Public Information is information available in a legitimate manner (website dissemination,

subscription etc.). For instance, all information on PACRA’s website is Public

Information.

Confidential Information is any data or information, tangible or intangible, material

(sensitive) or not, that is either:

i Not available without the explicit consent of the owner of such information

ii Capable of: (a) Having an effect on the market for a Security, and (b) Affecting the

investment decision of an investor

iii Made available to PACRA with the implicit or explicit understanding / agreement

that it would remain confidential; and / or

iv Proprietary to PACRA so that PACRA is the originator of such information

Conflict of

Interest (COI)

Conflict of interest (COI): A situation wherein an individual / organization, upholding a

position of trust / fiduciary responsibility, encounters a competing personal / professional

interest that has the potential to make it difficult for such individual / organization to fulfill

its position of trust / fiduciary responsibility objectively and impartially:

i Potential / Perceived COI: A COI that exists due to inherent aspects in a business

model despite institution of prudent systems and controls to manage such COI

ii Actual COI: A COI that comes into existence as a result of a failure in systems






and controls instituted to manage a potential COI

Disclosure The action of making new or Confidential Information known

Employees

Full-time or part-time individuals working for PACRA for a work-duration of minimum 90-

days. All Employees are classified as per their Line of Business:

Types of

Employees Line of Business

Internal RC

Members

See Defined Term “Rating Committee (RC), RC Members” later in

this Section

Rating

Analysts also

termed as

“Analysts”

“Performs analytical functions that are necessary for the issuing or

monitoring of a credit rating or participates in determining credit

ratings.” committee | Credit Rating Companies Regulations, 2016,

Regulation Annexure F)

Criteria Group

Employees

“Responsible for formulating and reviewing such criteria,

methodologies and procedures as specified in Annexure G to these

regulations and such group shall ensure that all new ratings criteria,

methodologies and procedures and subsequent amendments therein

have been made after careful and thorough analysis from both

analytical and market perspective;“ | Credit Rating Companies

Regulations, 2016, Regulation Chapter III, 11-C-(s))

Business

Development

& Marketing

Employees

“Who initiates or participates in a discussion regarding fee or payment

with any customer of the credit rating company;” Credit Rating

Companies Regulations, 2016, Regulation Chapter III, 12-2-(c))

Compliance &

Policy

Employees

“Responsible for monitoring compliance of the credit rating company

with the applicable regulatory regime;” Credit Rating Companies

Regulations, 2016, Regulation Chapter III, 11-F-(a))

Support

Employees

Performing support functions such as IT & administration, finance,

human resource, management IT

Non-rating

Employees Employees responsible for performing non-rating business

Initial rating

The rating assigned by PACRA for the first time

Ratings are also termed “Initial” when a previously:

i Private Rating converts into a Public Rating

ii Preliminary Rating is finalized

iii Withdrawn rating comes back to PACRA with a fresh Mandate

iv Defaulted rating emerges from default and assigned a fresh rating

Investment

All methods by which a Covered Person may possess an interest in a Security including

direct and beneficial ownership:

“beneficial ownership of shareholders or officer of a company” means ownership of

securities beneficially owned, held or controlled by any officer or substantial shareholder

directly or indirectly, either by—

(a) him or her;






(b) the wife or husband of an officer of a company, not being herself or himself an officer

of the company;

(c) the minor son or daughter of an officer where ―son‖ includes step-son and

―daughter‖ includes step-daughter; and ―minor means a person under the age of

eighteen years;

(d) in case of a company, where such officer or substantial shareholder is a shareholder,

but to the extent of his proportionate shareholding in the company:

Provided that ―control‖ in relation to securities means the power to exercise a controlling

influence over the voting power attached thereto:

Provided further that in case the substantial shareholder is a non-natural person, only those

securities will be treated beneficially owned by it, which are held in its name.

Explanation.—For the purpose of this Act “substantial shareholder”, in relation to a

company, means a person who has an interest in shares of a company-

(a) the nominal value of which is equal to or more than ten per cent of the issued share

capital of the company; or

(b) which enables the person to exercise or control the exercise of ten per cent or more of

the voting power at a general meeting of the company; “

Securities Act, 2015, Part I, Clause 2-(7)

Line of

Business

Areas of activity / functionality at or in PACRA: (i) Ratings, (ii) Criteria Group, (iii)

Business Development & Marketing, (iv) Compliance & Policy, (v) Support, (vi) Non-

rating business

Non-Disclosure

Agreement

A formal, written agreement between one, who discloses information that it considers

confidential and the other, who receives such information, knowing fully well that the

information is confidential binding the latter to an oath of confidentiality

Policies Official, documented statement on business, conduct and processes

Procedures A step-by-step guide and method / tool to implement a Policy / Methodology in a consistent

and uniform manner

Public

Dissemination

(also termed

Announcement)

Distribution of information in a manner whereby it becomes widely, freely and

simultaneously available to all users of such information. This includes public filing with a

regulatory body and disclosure on PACRA’s website or in media

Ratee The entity / issuer whose rating is assigned

Rating Actions

Typical Rating decisions that PACRA takes in relation to its rating. These are:

i Upgrade: The rating has been raised in the Rating Scale

ii Maintain: The rating has been kept at the same level on the rating scale. Ratings

“Maintain” may also include a continuation of, or change in a Rating Modifier

(Outlook, Rating watch), if it is used

iii Downgrade: The rating has been lowered in the Rating Scale

iv Improved: The performance ranking is higher compared to previous one in the






Fund Performance Ranking Scale

v Declined: The performance ranking is lower compared to previous one in the Fund

Performance Ranking Scale

vi Same: The performance ranking is similar compared to previous one in the Fund

Performance Ranking Scale

vii Withdraw: A rating is withdrawn on: a) termination of rating mandate, b)

cessation of underlying entity, c) the debt instrument is redeemed, d) the rating

remains suspended for six months, or e) the entity/issuer defaults

viii Redeem: Withdrawal on account of redemption of obligations

ix Suspended: It is not possible to update an opinion due to lack of requisite

information. Opinion should be resumed in foreseeable future. However, if this

does not happen within six (6) months, a suspended rating should be considered

withdrawn.

x Initial: The rating has been assigned as an “Initial Rating”

xi Preliminary: The rating has been assigned as a “Preliminary Rating”

xii Outlook / Rating Watch: See the definition for Rating Modifiers

xiii Harmonize: Rating action evolving from the process of harmonization. PACRA

defines harmonization as a change in rating due to revision in applicable

methodology or underlying scale.

Rating

Agreement

An agreement enumerating the terms and conditions driving the rating relationship between

PACRA and the Ratee

Rating

Committee

(RC), RC

Members

Rating Committee: PACRA Rating Committee (RC) is a forum whereby the rating

proposed by the Rating Team undergoes deliberation culminating in a decision as to what

the final rating would be. RC is core to the finalization of rating opinion. Rating decisions

are taken exclusively by the RC and not by any individual and are completely independent

of any influence.

RC Members: PACRA RC is structured to include both Internal and External RC

Members:

Internal RC Member: A PACRA Employee who has been formally designated in

the position. He may have other responsibilities / functions in PACRA.

External RC Member: “Any person who has been appointed by credit rating

company as member of its rating committee and has no direct or indirect association

with the credit rating company or any of its directors and sponsors.”

All RC Members need to be approved by BoD | Credit Rating Companies

Regulations, 2016, Regulation Chapter III, 11-C-(e)

All External RC Members need to be approved by the Securities and Exchange

Commission of Pakistan (SECP), in addition | Credit Rating Companies Regulations,

2016, Regulation Chapter III, 11-C-(g)

Secondment

Transfer of human resource from any Line of PACRA Business to work on a specific

assignment (Rating or Non-rating Business) for any designated period of time OR until the

Assignment is completed or vice versa. This also covers transfer of human resource to /

from PACRA to PACRA Analytics (Pvt.) Limited (the Affiliate) or vice versa

Selective Intentional or unintentional release of Confidential Information to a select individual / group






Disclosure From PACRA’s point of view: Selective disclosure constitutes divulging the rating

opinion to anyone other than the Client before Public Dissemination. The release of

such information to the Client doesn’t constitute selective disclosure

From Client’s point of view: Selective disclosure constitutes divulging the rating

opinion to anyone else (See exception below) before Public Dissemination by

PACRA. EXCEPTION: The Client may divulge the Private Rating in cases where

justifiable grounds exist to disclose Confidential Information and where the

recipient of such Confidential Information owes a duty of confidentiality to the

Client. These recipients could be the Clients shareholders, directors, lenders,

advisors, consultants, a government body, regulatory institutions etc.

Securities Stocks, bonds, commodities, foreign exchange currencies, indices and their derivatives

(futures contracts, options, etc.)

Substantial

shareholder

”Substantial shareholder” in relation to a credit rating company, means a person who has an

interest in shares of a company;

i. the nominal value of which is equal to or more than ten per cent of the issued share

capital of the company; or

ii. which enables the person to exercise or control the exercise of ten per cent or more

of the voting power at a general meeting of the company;

Credit Rating Companies Regulations, 2016, Regulation Chapter I, 2-(g)

Trade, Trading Any transaction involving buying or selling of a Security

i the pakistan credit rating agency limited · 2018-12-20 · i the pakistan credit rating agency...

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