Regulation of the activities of Credit Rating Agencies (“CRAs“) in Israel is fairly new with the first piece of legislation to specifically regulate CRAs being enacted in March 2014 in the form of the Law to Regulate the Activity of Credit Rating Companies, 2014 (“the CRAs Law“).
The legislation process which started with the enactment of the CRAs Law was recently completed with the passing of the Regulations for Regulating the Activities of Credit Rating Companies (2014) (“the Regulations“) with both the CRAs Law and the Regulations becoming effective in April 2015. The main addition of the Regulations is the implementation of extensive disclosure requirements on the activities of CRAs. As of April 2015, CRA’s will be required to make periodic and sometimes and even immediate reports to the public in Israel and the Israeli Securities Authority (“the ISA“). For example, from that date, CRAs will need to disclose every rating they make (other than ratings not intended to be made available to the public or ratings of private companies) together with material information regarding the basis for the rating, extreme scenarios reviewed in the context of the rating, the possibility of changing this rating in the future, etc. The CRAs may also need to disclose the rating and evaluation methods which were used to make ratings. Immediate reports will need to be filed, for example, if a CRA chooses to stop rating a company or if it discovers an error in the rating. CRAs would also need to disclose information regarding their main clients, including information about other services which these clients acquire from the CRA. In addition to the disclosure requirement described above, the Regulations also require CRAs to maintain a website, in Hebrew, which will be open to the public, free of charge. The website would contain details regarding the information which the CRAs are required to disclose to the public, as well as certain general information. Among such general information which CRAs need to disclose to the public we note information regarding conflicts of interests, information regarding the fees which the CRA charges from clients and the way they are calculated, information regarding the controlling shareholders of the CRA and more. Although the website must be in Hebrew, the ISA may permit a CRA to publish some of those matters in English. Lastly, the Regulations also impose certain record-keeping and internal auditing requirements which CRAs are required to implement. With the completion of the legislation process, the rating process in Israel is expected to become more reliable and transparent and to afford better protection to investors, similar to that currently existing in other Western capital markets.