Code of Conduct

Code of Conduct

Introduction

• This Code of Conduct (the Code) is developed in accordance with the requirements of principles outlined in the Codes of Conduct issued by IOSCO.
• The Code is applicable to Beacon Ratings, its shareholders, its Board of Directors (BOD) and all employees including permanent, on probation and contractual employees who will be bound to accept and act in accordance with the requirements of the Code.

Restrictions on Beacon Ratings as a credit rating agency

Beacon Ratings shall:

• Not provide rating services to an entity where any of its directors is holding a directorship or a substantial shareholding or in any way connected.
• Not accept a rating assignment where a person directly or indirectly, holding shares of Beacon Ratings also holds directly or indirectly shares of that entity.
• Ensure that no officer or employee communicates information, acquired by him/her for the purpose of rating, to any other person except where required under law to do so.
• Not provide rating to its associated entities or instruments issued by it.
• Not disclose to third-parties, non-public information which has come to its knowledge during business relationship with clients.
• Not accept a rating assignment from a client who has terminated a rating contract with its existing credit rating agency before its expiry, unless such client obtains a ‘No Objection Certificate’.

Duties and obligations of conduct of business

Beacon Ratings shall:

• Fulfil its obligations in an impartial, transparent and ethical manner, and render high standards of services in performing its functions as a credit rating agency.
• Employ competent and qualified Rating Analysts who meet the fit and proper criteria as outlined in the Credit Rating Agency Guidelines issued by the Securities and Exchange Commission.
• Endeavour to subject its Rating Analysts to an appropriate rotation mechanism that provides for gradual change in rating teams.
• Continuously engage rated entities, issuers and instruments so as to remain updated on all information pertaining to their ratings.
• Prepare a descriptive default notes on entities, issuers and instruments and disseminate the same to the Commission, the public and on its website.
• Ensure that employees involved in the rating process or have access to non-public information of clients sign ‘Non-Disclosure Agreement’ (NDA) at the start of their employment.
• Clearly indicate the attributes and limitations of each rating and the extent to which it has verified information provided by clients for rating.
• Prohibit its employees from soliciting money, gifts or favours from clients or clients’ associates.
• Ensure that a Rating Analyst has not had employment or other significant business or personal relationship with an entity that he/she is assigned.

Internal control, compliance policies and procedures

Beacon Ratings shall:

• Employ internal control policies and operational capabilities which can be reasonably expected to protect its operations and its clients.
• Develop a human resource policy encompassing the recruitment, selection, compensation, promotions, trainings and other human resource related matters.
• Establish and maintain comprehensive risk management systems to enable it to identify, assess, mitigate, control and monitor risks arising from its activities.
• Develop policies and procedures to ensure its employees’ compliance with the regulatory requirements.
• Establish policies and procedures to ensure its employees and directors disclose actual and potential conflict of interest.
• Establish policies and procedures governing investments and trading in securities by its employees to prevent insider trading, market manipulation or other market abuse.
• Inform clients, issuers or instruments when issuing or revising a rating of the critical information and principal considerations upon which a rating is based and provide an opportunity for clarification.
• Conduct industry specific studies on regular basis and publish the findings on its website.
• Employ adequate infrastructure and information systems to provide reliable rating services and maintain its rating operations and facilities with adequate security, system capacity and contingency arrangements.
• Develop and implement a whistle-blower protection policy to encourage employees to report unethical practices or misconducts relating to rating to the Compliance Officer.
• Ensure that a periodic or annual review of all policies and assessment of overall level of compliance is carried out by the Compliance Officer.
• Promptly investigate, in the event of misconduct or breach of policies, procedures and controls and will take appropriate steps to rectify any weaknesses.
• Ensure all reported events are investigated promptly by the Compliance Officer in accordance with the provisions provided in the whistle-blower policy.

Criteria, methodologies and procedures

Beacon Ratings shall:

• Establish a committee to be responsible for formulating, reviewing and updating criteria, methodologies and procedures.
• Develop a well-defined rating criteria, methodologies and procedures for solicited and unsolicited credit ratings for each class of entity, issuer and instrument services.
• Proactively review and update its rating criteria, methodologies and procedures at least once in a year, if necessary, taking into account changes in the market environment.
• Ensure that analysts will be required to follow the defined rating criteria, methodologies and procedures carefully, uniformly and in a consistent manner.
• Ensure that its criteria, methodologies, procedures, and business activities conform with international best practices and guidelines.
• Ensure that rating decisions are consistent with the criteria, methodologies, procedures as established and published.

Rating Committee

Beacon Ratings shall:

• Establish a Rating Committee consisting of five (5) members, three (3) of which shall be external experts as deemed appropriate.
• Ensure all its Rating Committee members meet the fit and proper test as prescribed by the Credit Rating Agency Guidelines issued the Securities and Exchange Commission.
• Ensure that fee arrangement for its Rating Committeeexternal expertsarenot be linked to the performance of the business.
• Ensure that its Rating Committee is the final authority to decide and assign ratings, including decisions regarding changes in the ratings.
• Ensure thata minimum-voting quorum of three (3) members with at least two external experts, participate in the Rating Committee’s decisions.
• Ensure that the Rating Committee act with due care, skill and diligence in carrying out its duties and responsibilities.
• Ensure that its Rating Committee is able to perform its duties free of undue intervention or influence from its shareholders, its management or the board.

Working papers, documents and correspondences supporting of ratings

Beacon Ratings shall:

• Ensure that proper record of Rating Committee meetings including detailed minutes, rating decisions and rationale for assigning the ratings.
• Keep the following records of the Rating Committee in support of ratings thereof:
• Summary of discussions with entities, issuers or instruments’ senior management which have a bearing on the credit rating.
• Decisions of the Rating Committee, including voting details and notes of dissent by a member of the Rating Committee.
• Rationale for a material difference between the rating implied by the quantitative model and the rating actually assigned where a quantitative model is a substantial component of the rating process.
• Ensure that record of all ratings whether active, withdrawn or matured, is maintained for a period of not less than seven (7) years. In case of instrument ratings, the time period of 7 years shall be reckoned from the date of maturity of such instrument.

Compliance Officer

Beacon Ratings shall:

• Maintain a designated officer as a Compliance Officer who will be responsible for monitoring compliance within the applicable regulatory regime, particularly compliance relating to dissemination, reporting, filing, and implementation of policies relating to rating processes, employees, redressal of clients’ and other stakeholders’ complaints.
• Provide the Compliance Officer the necessary authority, resources and access to all the relevant information.
• Ensure that Compliance Officer has direct line of reporting on compliance to the Board, and on routine duties, to senior management.
• Compliance Officer reports any non-compliance with the Regulations to the Securities and exchange Commission, where the Board failed to comply with Regulations.

Board of directors

Beacon Ratings shall:

• Have at least five (5) members on its Board, two-thirds of which will be independent non-executive members.
• Ensure that at least two (2) independent non-executive members be present in every meeting of the Board to constitute the quorum of three (3) members.
• Ensure that the Board Chair is an independent non-executive member.

Conflict of interest

Beacon Ratings shall:

• Not provide advisory services to any of its rated clients during the preceding three years.
• Include a statement in each rating report that, its analysts involved in the rating process and members of its Rating Committee do not have any conflict of interest relating to rating done.
• Ensure its Analysts and Rating Committee members submit statement of conflicts of interest, including those of their family members, if any, to the Compliance Officer.

Contents of ratings agreement

Beacon Ratings shall:

• Not accept any rating assignment except through a rating service agreement in writing.
• Ensure that rating service agreement will contain the provisions including the following:
• A clause requiring the client to provide accurate, complete, and updated information for the purpose of analysis and rating.
• A clause empowering Beacon Ratings to call and obtain, any time during the validity period of the agreement or tenure of the instrument, all such information as deemed necessary for conduct of timely review of the rating assigned.
• A clause stipulating rating withdrawal, or cancellation of agreement or any other measures to be taken in case of non-provision of information by the client.
• Consent of the client authorizing Beacon Ratings to conduct review of the rating any time during the validity period of the agreement or during the tenure of the instrument.
• A clause requiring the client to obtain NOC from its existing credit rating agency in case of termination of rating agreement prior to its expiry.
• A clause clearly stipulating the beginning date and expiry date of the rating agreement.
• A clause stipulating the fee to be charged including the initial fee and surveillance fee if any, along with their payment schedule.
• Rights and obligations of each party to the agreement.
• Nature of the rating i.e. entity, issuer or instrument rating.
• Tenure of the rating assignment.

Announcing ratings and other disclosures

Beacon Ratings shall:

• Disseminate all ratings assigned by it, whether solicited or unsolicited, except for private ratings, by press release to a news media and publish same on its website.
• Maintain an official website and will disseminate on it, inter-alia the following:
• Rating criteria, rating process and policies for all rating services.
• Rating definitions and symbols related thereto.
• Rating reports for at least last five years.
• Other disclosures as required by Regulations.

Monitoring and review of ratings

Beacon Ratings shall:

• Review all outstanding ratings on semi-annual basis or as and when required by a creditor or upon the occurrence of such any significant event that merit such a review.
• Monitor and initiate immediate review of outstanding rating upon becoming aware of any significant event that may reasonably be expected to result in downgrading of rating.
• Engage with issuers and debt securities trustee, to remain updated on all information pertaining to rating of entities/instruments.
• Ensure that discontinuance of monitoring/withdrawal of rated entity or security is communicated to the Securities and Exchange Commission and the public immediately.

Accounting and other related records

Beacon Ratings shall:

• Keep accounting and other records as required under the Companies Act, 2019 (Act 992).
• Maintain the following records:
• Information provided by clients
• Correspondence with clients
• Ratings assigned to the entities, issuers and instruments
• Minutes of Rating Committee meetings
• Fee charged clients
• Rating criteria, methodology and procedures
• Annual reports and financial statements as required under the Companies Act, 2019 (Act 992).
• Submit, within four months after the end of each financial year, its audited financial statement to the Securities and Exchange Commission.