The Securities and Exchange Commission has introduced a proposal to overhaul rules governing credit rating agencies, a move seen as a significant capital‑market reform aimed at strengthening investor confidence and encouraging greater use of the bond market.
Toby Allan C. Arce, head of sales trading at Globalinks Securities and Stocks, notes that the proposal goes beyond updating the 2015 framework, introducing broader regulatory standards that align with international practices adopted after the global financial crisis.
The draft memorandum circular outlines a new regulatory framework for credit rating agencies, covering accreditation, corporate governance, analyst competence and independence, rating processes, transparency, reporting obligations, and methodology development.
The proposed rules would also expand regulatory scope beyond corporate bonds and commercial paper to include structured products, sukuk, covered bonds, sustainability‑linked instruments, and other debt securities issued in the Philippines.
Aligning the framework with internationally accepted standards is critical because the Philippine bond market remains relatively underdeveloped compared with regional peers, creating information asymmetry especially for smaller issuers and complex debt instruments.
Stronger regulation of credit rating agencies is expected to improve the credibility, consistency, and independence of ratings, thereby reducing informational barriers that hinder investors from assessing credit risk across a broader range of issuers.
The reforms could also support efforts to broaden retail participation in the fixed‑income market and encourage more companies to raise funds through public bonds rather than relying primarily on bank financing.
The draft sets minimum capital requirements for credit rating agencies at ₱50 million upon accreditation, increasing to ₱70 million after a three‑year transition, to ensure sufficient financial and operational capacity for rating and surveillance activities.
New ownership controls would require prior SEC approval for shareholding changes that create a new controller and would prohibit shareholders holding at least a 5 % stake in one agency from owning a similar interest in another, addressing potential conflicts of interest.
Fit‑and‑proper requirements would extend to agency controllers, mandating standards of integrity, competence, financial soundness, and conflict‑of‑interest management as part of the accreditation process.
The expanded regulatory scope reflects the evolution of the capital market as issuers increasingly tap sustainable finance and other specialized debt instruments, integrating them into a single regulatory framework.
Overall, the proposal is positioned as an investment in market infrastructure rather than a tightening exercise, with the potential to boost investor confidence, support new debt products, and broaden participation in the fixed‑income market.
If successfully implemented, the reforms should contribute to a more resilient and internationally competitive Philippine capital market.
The SEC released the draft after its July 9 meeting and will accept public comments until July 24.
