Chapter III
PROVISION OF CREDIT RATING SERVICES
Article 26. Credit rating process
1. A credit rating agency shall develop its credit rating process involving the following basic steps:
a/ Negotiation on and signing of credit rating contracts with organizations subject to credit rating;
b/ Selection of and assignment of tasks to analysts participating in credit rating contracts under Article 29 of this Decree;
c/ Formation of credit rating councils to perform credit rating contracts under Article 30 of this Decree;
d/ Collection of information, analysis, assessment and grading of the ability of rated organizations to honor their debt obligations;
dd/ Approval of credit rating results;
e/ Publication of reports on credit rating results;
g/ Monitoring, updating and periodical evaluation of reports on credit rating results under credit rating contracts until these contracts expire;
h/ Expiration of credit rating contracts.
2. Credit rating agencies shall comply with the credit rating process prescribed in Clause 1 of this Article.
3. Credit rating agencies shall disclose their own credit rating processes and updated versions thereof (if any) on their websites.
Article 27. Credit rating contracts
1. Credit rating contracts must ensure the principles prescribed in Article 5 of this Decree.
2. A credit rating contract shall be made in writing and contain the following principal details:
a/ Names, addresses and representatives of the credit rating agency and organization subject to credit rating;
b/ Credit rating purposes, scope and activities;
c/ Time limit for performance of the contract;
d/ Conditions and terms on disclosure of credit rating results; dd/ Credit rating service charge;
e/ Rights, obligations and responsibilities of the contracting parties in the course of performance of the contract;
g/ Obligation of the contracting parties to keep confidential information under Article 39 of this Decree;
h/ Monitoring, periodical evaluation and updating of reports on credit rating results until the contract expires;
i/ Cases in which the contract shall immaturely expire and responsibilities of the contracting parties;
k/ Settlement of disputes.
Article 28. Credit rating service charges
1. Credit rating service charges shall be agreed upon by credit rating agencies and rated organizations and stated in credit rating contracts.
2. Credit rating service charges shall be based on the following:
a/ Activities, volume and characteristics of rating jobs;
b/ Duration of the credit rating contract;
c/ Qualifications, experience and prestige of analysts, credit rating council and credit rating agency;
d/ Level of responsibility of the credit rating agency.
Article 29. Analysts
1. For each credit rating contract, a credit rating agency shall select, assign tasks to and decide on the number of analysts based on the scope and characteristics of such contract. An analyst participating in each credit rating contract must meet the following basic requirements:
a/ Meeting all the criteria and conditions prescribed in Article 21 of this Decree;
b/ Not participating in the management of the credit rating agency;
c/ Not being concurrently a member of the credit rating council for such credit rating contract;
d/ Not falling into the cases of conflict of interest specified in Clause 2, Article 38 of this Decree when participating in such credit rating contract. In the course of performance of the contract, if there is a conflict of interest of the analyst specified in Clause 2, Article 38 of this Decree, the credit rating agency shall terminate the participation of the analyst in the credit rating contract. The agency may replace the analyst or add new analysts when necessary.
2. Tasks of analysts:
a/ To collect information, analyze, assess and grade the ability of rated organizations to honor their debt obligations as assigned by their credit rating agency;
b/ To report on tentative credit rating results to the credit rating council as assigned by their credit rating agency;
c/ To report to the credit rating council and request termination of their participation in credit rating contracts in the cases of conflict of interest specified in Article 38 of this Decree;
d/ To observe the code of conduct prescribed in Article 34 of this Decree.
Article 30. Credit rating councils
1. For each credit rating contract, a credit rating agency shall form a credit rating council, select and decide on the number of council numbers based on the scope and characteristics of such contract. The minimum number of council members is three (3). The selection of members of a credit rating council for each credit rating contract must adhere to the following principles:
a/ At least one (1) member of the credit rating council is an employee of the credit rating agency;
b/ At least one (1) member of the credit rating council possesses one of the following certificates: Auditor certificate granted by the Ministry of Finance, an internationally recognized certificate for securities investment analysis, accounting or audit;
c/ These members fully meet the criteria and conditions prescribed in Article 20 of this Decree;
d/ These members do not participate in the management of the credit rating agency;
dd/ These members are not analysts for the same credit rating contract;
e/ These members do not fall into the cases of conflict of interest specified in Clause 2, Article 38 of this Decree when participating in the credit rating contract. In the course of performance of the contract, if there is a conflict of interest of credit rating council members, the credit rating agency shall terminate the participation of such members in the credit rating contract. The agency may replace these members or add new members when necessary.
2. Tasks of credit rating council members:
a/ To decide on credit rating results or change credit rating grades under the voting mechanism prescribed in the operation regulation of the credit rating council;
b/ In the course of performance of the contract, the credit rating council shall report to the manager of the agency on cases of conflict of interest of analysts and council members as specified in Clause 2, Article 38 of this Decree.
3. Responsibilities of credit rating council members:
a/ To attend meetings of the credit rating council to evaluate, discuss and vote credit rating grades, update credit rating grades and report on credit rating results;
b/ In the course of performance of credit rating contracts, if falling into the cases of interest conflict specified in Clause 2, Article 38 of this Decree, to report to the credit rating council and request the termination of their participation in these contracts;
c/ To observe the code of conduct prescribed in Article 34 of this Decree.
4. Operation mechanism of credit rating councils:
a/ A credit rating agency shall issue the operation regulation of a credit rating council, covering the following principal contents:
- Voting mechanism of the credit rating council which requires at least over 60% of council members voting to approve each decision of the council;
- Mechanism for electing the chairperson of the credit rating council to manage its operation;
- Mechanism for settling conflicts of interest (if any) of analysts and council members;
- Mechanism for adding or replacing council members.
b/ When voting to approve credit rating grades, updating credit rating grades and reporting on credit rating results, a credit rating council must ensure independence, impartiality, transparency and no influence from the general director, director, Board of Directors or Members’ Council of the credit rating agency;
c/ Credit rating councils disband when credit rating contracts expire.
Article 31. Professional processes
1. Credit rating agencies shall issue professional processes for their credit rating activities under this Decree.
2. A system of professional processes includes:
a/ Working process of analysts;
b/ Operation regulation of the credit rating council as prescribed in Clause 4, Article 30 of this Decree;
c/ Credit rating methodologies as prescribed in Article 32 of this Decree;
d/ Process of developing, evaluating and updating credit rating methods;
dd/ Code of conduct prescribed in Article 34 of this Decree.
Article 32. Credit rating methodologies
1. Credit rating agencies shall develop credit rating methodologies to analyze and evaluate the ability of rated organizations to honor their debt obligations. Credit rating methodologies must include both quantitative and qualitative evaluation methodologies.
2. A credit rating methodology must evaluate basic risks and their impacts on the ability of rated organizations to honor their debt obligations, including:
a/ Macro risks;
b/ Market and business environment risks;
c/ Strategic risks;
d/ Governance risks;
dd/ Personnel risks;
e/ Financial risks;
g/ Other risks as evaluated by the credit rating agency.
3. Credit rating agencies shall use credit rating methodologies in a systematic and consistent manner for each debt obligation and each production or business line.
4. Periodically, credit rating agencies shall review credit rating methodologies and hypotheses they have used and adjust them when necessary.
5. Credit rating agencies shall disclose on their websites basic contents of their credit rating methodologies.
Article 33. Credit rating grades
1. Credit rating agencies shall establish and consistently use a system of credit rating grades on the following basic principles:
a/ Credit rating grades must be clear, comprehensible and comparable;
b/ Credit rating grades spread from the highest to lowest indicating the ability of rated organizations to honor their debt obligations. '
2. Credit rating agencies shall disclose on their websites the symbol and its denotation of each credit rating grade.
Article 34. Code of conduct
1. Credit rating agencies shall issue and apply their own codes of conduct based on the Code of Conduct Fundamentals for Credit Rating Agencies issued by the International Organization of Securities Commissions (IOSCO) and disclose such codes on their websites.
2. Credit rating agencies shall issue their codes of conduct for application to their operation, analysts and credit rating council members.
Article 35. Reports on credit rating results
1. Within twenty four (24) hours after issuing official decisions on credit rating results, credit rating agencies shall disclose reports on credit rating results on their websites.
2. A report on credit rating results must have the following principal contents:
a/ Credit rating grade;
b/ Overall evaluation of the rated organization;
c/ Material factors which positively and negatively impact the ability of the rated organization to honor its debt obligation;
d/ Statistics on all past credit ratings (if any) of the rated organization;
dd/ Names and titles of analysts and credit rating council members participating in the credit rating contract;
e/ Cases in which analysts and credit rating council members cease their participation in the credit rating contract before the contract expires and the reason for the cessation;
g/ Rate of holding of the credit rating agency by the rated organization;
h/ Rates of holding of the credit rating agency by its employees;
i/ Commitment to conducting credit rating in an independent and impartial manner;
k/ Disclaimer that information in the credit rating report is for reference and is not an investment or capital contribution recommendation regarding debt or financial instruments issued by the credit rating agency.
3. Reports on credit rating results shall be signed by at-law representatives or authorized persons of credit rating agencies.
Article 36. Disclosure of information
1. A credit rating agency shall disclose on its website the following basic information:
a/ Name of its general director or director;
b/ Code of conduct prescribed in Article 34 of this Decree;
c/ Credit rating method prescribed in Article 32 of this Decree;
d/ Credit rating grade prescribed in Article 33 of this Decree;
dd/ List and capital contribution portions of shareholders or capital-contributing members that hold over 5% of its paid-up charter capital;
e/ Change in the rate of holding by shareholders or capital-contributing members that hold over 5% of its paid-up charter capital;
g/ Report on credit rating results prescribed in Article 35 for each credit rating contract.
2. Once every six (6) months, a credit rating agency shall disclose on its website the following basic statistics:
a/ Credit rating grade of each rated organization since the first credit rating;
b/ Average percentage of rated organizations honoring their debt obligations in each rating grade.
3. Before May 1 every year, a credit rating agency shall disclose on its website a list of rated organizations with a credit rating service charge accounting for over 5% of its total turnover from credit rating activities in the fiscal year prior to the time of information disclosure.
4. Information specified in Clauses 1, 2 and 3 of this Article shall be maintained and archived on the websites of credit rating agencies within five (5) years after it is disclosed.
Article 37. Internal control systems
1. An internal control system means a system of internal mechanisms, policies, processes and regulations to prevent, detect and promptly handle risks in credit rating activities.
2. A credit rating agency shall establish and operate an internal control system to:
a/ Monitor the independence and impartiality of the credit rating agency, analysts and credit rating council members from rated organizations;
b/ Prevent, detect and promptly settle present or potential conflicts of interest of the credit rating agency, analysts and credit rating council members from rated organizations;
c/ Prevent, detect and promptly handle the disclosure of information on rated organizations;
d/ Comply with law and internal regulations and processes.
3. Internal control systems of credit rating agencies shall be evaluated annually by independent audit firms.
Article 38. Cases of conflict of interest
1. A credit rating agency:
a/ Purchases and holds stocks, capital contributions and debt instruments of a rated organization in the course of performance of a credit rating contract;
b/ Provides credit rating services to its affiliated persons;
c/ Makes or receives investment capital contribution to/from a rated organization;
d/ Has an affiliated person holding over 5% of the paid-up charter capital of a rated organization or over 5% of the total balance of rated debt instruments.
2. An agency manager, analyst or credit rating council member:
a/ Purchases and holds stocks, capital contributions and debt instruments of a rated organization in the course of performance of a credit rating contract;
b/ Holds over 5% of the paid-up charter capital of an organization providing service of issuance consultancy, risk management, issuance underwriting or distribution agency for a rated organization;
c/ Participates in the negotiation on service charge of a credit rating contract;
d/ Signs an economic contract with a rated organization;
dd/ Has a labor contract with a rated organization;
e/ Provides the service of issuance consultancy, risk management, issuance underwriting or distribution agency for a rated organization;
g/ Is an affiliated person of a rated organization or an organization providing the service of issuance consultancy, risk management, issuance underwriting or distribution agency for a rated organization;
h/ Has an affiliated person holding over 5% of the paid-up charter capital of a rated organization or over 5% of the total balance of rated debt instruments.
Article 39. Confidentiality of information
Credit rating agencies and their analysts and credit rating council members may not disclose information on rated organizations under the confidentiality of information clause in credit rating contracts, except information specified in Article 36 of this Decree, information accepted by credit rating agencies for disclosure and information requested by competent state management agencies.
Article 40. Archive of dossiers
1. Credit rating agencies shall archive both hard copies and electronic records of all analysis dossiers for credit rating, including documents and data used in the course of credit rating.
2. The duration of archive of dossiers is at least ten (10) years.
3. Credit rating agencies shall provide archived dossiers to competent agencies when so requested.
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