Training on modelling fundamentals December 17–18

Policy on Management of Conflicts of Interests

1. General provisions

1.1. This Policy determines the main measures for identification, management and disclosure (in respective cases) of any on-going or potential Conflict of Interests, which may affect ACRA’s Methodology and Rating Actions  or professional judgment of ACRA employees, who can affect the assignment of Credit Ratings or Credit Rating Outlooks.

1.2. ACRA shall take all required measures to prevent any influence on Credit Ratings and Credit Rating Outlooks of an on-going or potentialConflict of Interests of the Agency, its founders, Rating Analysts, other ACRA employees and those who exercise control over it or significantly influence it.

2. List of terms and definitions

2.1. ACRA – Analytical Credit Rating Agency (Joint-Stock Company);

2.2. Analytical Unit – a set of ACRA’s business units performing such functions as analysis of Rated Entities’ creditworthiness in accordance with the adopted Methodology, as well as preparation and implementation of Rating Actions.

2.3. Leading Rating Analyst – a Rating Analyst whose main responsibilities include interaction with the Rated Entity on a specific Credit Rating, preparation of documents and proposals for the Rating Committee with regard to such a Credit Rating.

2.4. Additional Services – additionally provided fee-based services not related to Rating Activities and pre-approved by the Bank of Russia according to the set procedure.

2.5. The Law on Rating Agencies – Federal Law No. 222-FZ, dated July 13, 2015, “‘On Activity of Credit Rating Agencies in the Russian Federation, On Amending Article 76.1 of the Federal Law ‘On the Central Bank of the Russian Federation (Bank of Russia)’ and Recognizing Null and Void Certain Provisions of Legislative Acts of the Russian Federation”

2.6. Confidential Information – any information that is not generally available, including: (1) non-public information submitted by counterparties for taking Rating Actions under concluded contracts; (2) material Non-public information received from any source; (3) details and plans for specific Rating Actions; (4) unpublished press releases related to Rating Actions and unpublished research and forecast reports; (5) non-public information related to the process of Rating Committee activities; (6) details of agreements with counterparties on providing rating and other services; (7) internal non-public financial information; (8) a development strategy, description of internal business processes and other know-how; (9) insider information as outlined in the list defined by the normative act of the Bank of Russia; (10) personal data of ACRA employees and those of ACRA’s counterparties;

2.7. Conflict of Interests – a situation when personal interests (direct or indirect) of ACRA, its shareholders, Rating Analysts, other employees of ACRA and persons/entities, which exercise control over it or have a significant influence on it, may adversely affect independence or objectivity of ACRA (including assignment of Credit Ratings or Credit Rating Outlooks), as well as entail other negative consequences for ACRA, ACRA employees and/or Rated Entities.

2.8. Credit Rating – ACRA’s opinion on the ability of a Rated Entity to meet its financial obligations (creditworthiness, financial reliability, financial stability) and/or on the credit risk of its specific financial obligations or instruments, expressed through a rating category.

2.9. Methodology – an ACRA document, which defines the principles and forms of the analysis of quantitative and qualitative factors and provides guidance on the application of models and key rating assumptions, which lay the basis for decisions on Rating Actions.

2.10. Methodology Group – the group of ACRA employees who approve and update its Methodology, monitor the application of the Methodology to Rating Activities, and are also responsible for assessing the correctness of its application.

2.11. Rating Analyst – an ACRA employee performing analytical functions required for Rating Actions.

2.12. Rating Actions – any of the listed events with regard to the Credit Rating of a Rated Entity: preparation, assignment, confirmation, review or withdrawal.

2.13. Rating Activities – permanent professional activities, which consist as a whole of preparing, assigning, affirming, reviewing and withdrawing Credit Ratings and Credit Rating Outlooks on the basis of information analysis in accordance with the Methodology. These activities shall be accompanied with the dissemination of information about the assigned Credit Ratings and Credit Rating Outlooks in any way that ensures public access to such information.

2.14. Rating Committee – a group of Rating Analysts, including the Chairman of the Rating Committee, who collectively decide on Rating Actions.

2.15. Rating Process – a set of operations within the framework of Rating Activities, including: selection and appointment of Credit Analysts for performing Rating Analysis, carrying out of Rating Analysis, holding the Rating Committee to take decisions on Rating Actions, interaction with the Rated Entity / issuer and/or its representatives and publication of Credit Rating when appropriate.

2.16. Rated Entity – a legal or a public-law entity whose ability to meet its assumed financial obligations (creditworthiness, financial accountability, and financial sustainability) is explicitly or implicitly evaluated by a Credit Rating.

2.17. Compliance and Internal Control Service (CICS) – an ACRA unit that performs the functions of an internal control body. 

2.18. Security – any tradable financial instrument representing a tradable asset. Within this document the term “Security” shall refer but not shall be limited to: shares, bonds, promissory notes and derivative financial instruments (including futures, options, swaps, etc.).

3. Measures and procedures for managing Conflicts of Interests

3.1. Measures for identification and prevention of Conflict of Interests upon implementation of the Rating Activities

3.1.1. A Credit Rating or Credit Rating Outlook cannot be assigned under the following circumstances:

a) if a Rated Entity is an entity that controls or influences ACRA significantly;

b) if a Rated Entity is controlled or significantly influenced by an entity that in turn controls influences ACRA;

c) if ACRA controls the Rated Entity or influences it significantly;

d) if ACRA directly or indirectly possesses financial instruments issued by the Rated Entity or any other assets of the Rated Entity;

e) if the Rated Entity is a creditor of ACRA for an amount exceeding 10 per cent of the balance sheet asset value of ACRA or a person in control of, or having substantial influence over, the creditor;

f) if the founder (shareholder, unitholder) of ACRA owning 10 and more per cent of the votes attached to the shares (equity) in the authorised capital of ACRA:

  • owns 10 and more percent of the votes attached to the shares (units) in the authorised capital of the Rated Entity or has any other property interest in relation to the Rated Entity;
  • sits on the management bodies of the Rated Entity or persons in control of, or having substantial influence over, the Rated Entity;

3.1.2. An ACRA employee cannot directly or indirectly take part in the process of assigning a Credit Rating or Credit Rating Outlook or otherwise influence this process in cases listed in Clause 3.3. of the Policy on Personal Holding and Trade of Securities by ACRA’s Employees.

3.1.3. Rating Analysts, their children and spouses, as well as legal entities under their control (including trusts), must not invest in Securities or perform transactions with Securities issued by entities within specialization of an Analytical Group of a Rating Analyst. The prohibition remains in force regardless of the fact whether this issuer or Security is an object of Rating Actions at the moment of transaction performance or not and irrespective of the fact whether an issuer (or a Security) has an ACRA’s Credit Rating.

3.1.4. Rating Analyst cannot take part in the process of assigning a Credit Rating or Outlook on the Credit Rating or have any influence on this process, if he/she was in employment or business relationship with the Rated Entity during one calendar year prior to the date of the Rating Action.

3.1.5. Rating Analyst cannot take part in the process of assigning a Credit Rating or Outlook on the Credit Rating or have any influence on this process, if he/she is a close relative (parent, brother, sister or child), spouse, parent or child of the spouse of an employee of the Rated Entity or the person in control of, or having substantial influence over, the Rated Entity, which may result in a Conflict of Interests;

3.1.6. A Conflict of Interests when exercising a Rating Activity can be caused by personal relationship of the Rating Analysts and other ACRA employees, who can influence the assignment of a Credit Rating or a Credit Rating Outlook (e.g. with an employee of the Rated Entity, originator, underwriter, organizer or another company providing services, that have attributes of rating services).

3.1.7. Limitations listed in paragraphs 3.1.1.-3.1.3. of the Policy are not subjects to contribution to non-state pension funds, investment units of unit investment funds, bank deposits and ownership of other kinds of property, which does not provides for an opportunity for ACRA or its employees to influence operations of these entities and does not result in Conflict of Interests associated with confidential information at the disposal of employees.

3.1.8. An employee that possesses information indicating that he acts under the circumstances listed in paragraphs 3.1.2.-3.1.6. of the Policy is obliged to: (1) inform his senior manager and CICS; (2) stop participating in the Rating Process or influencing this process anyhow if the Conflict of Interests was deemed unacceptable by the CICS.

3.1.9. ACRA shall ensure a rotation procedure (replacement of Lead Rating Analysts involved in the preparation of a Credit Rating and (or) a Credit Rating Outlook for one rated entity) in accordance with the requirements of the Law on Rating Agencies and internal documents of ACRA.

4. Procedures of making decisions on Rating Actions

4.1. Decisions on Rating Actions are made by a group of Rating Analysts (Rating Committee).

4.2. A Rating Committee is formed with due regard for requirement of non-involvement of the members of the Rating Committee in actual or potential Conflict of Interests. Control over non-involvement of the members of the Rating Committee in actual or potential Conflict of Interests is imposed on the Chairman of the Rating Committee.

4.3. Description of competencies, functions and order of formation of the structure of the Rating Committee and its functioning, rights and obligations of its members and procedure of challenging its decisions are enclosed in the Regulations on the Rating Committee, which is an internal document of ACRA.

5. Provision of independence of the Analytical Unit and the Methodology Group

5.1. ACRA’s Analytical Unit as well as Rating Analysts shall be separated organisationally and technologically from ACRA’s founders (shareholders, participants), ACRA’s management bodies, ACRA’s subsidiaries, as well as from all other ACRA units, including the units and employees responsible for advertising, customer acquisition and conclusion of agreements on Rating Actions.

5.2. The members of ACRA management bodies, Rating Analysts, as well as employees of units responsible for advertising, acquiring customers and concluding agreements on performing Rating Actions shall not be allowed to be included in the Methodology Group. The Methodology Group shall be independent from Rating Analysts and other units in its work.

5.3. ACRA employees involved in Rating Actions or otherwise affecting the process of Credit Rating assignments or involved in the Methodology Group cannot be concurrently engaged in the process of interaction with Rated Entities, issuers, organisers of placements or their representatives (as well as their affiliated entities) on the matters of advertising, acquiring customers and concluding agreements on performing Rating Actions, negotiations or discussions of payments for rating services.

5.4. In order to resolve certain conflicts with customers, the managers of units interacting with customers may involve the managers of Rating Analysts on a one-off basis, with this information being communicated to the CICS in order to prevent a Conflict of Interests.

5.5. The remuneration of Rating Analysts, including Chairmen of Rating Committees does not depend on the level of income of ACRA received from the Rated Entity or an entity exercising control over it or significantly influencing it.

5.6. A Rating Analyst does not have the right to possess shares in ACRA's authorized capital.

6. Restrictions on operations with securities or derivatives and account information disclosure

6.1. ACRA employees fall within the prohibitions, restrictions and requirements of information disclosure that are related to operations with Securities. All ACRA employees must comply with these requirements to eliminate the Conflict of Interests. Requirements to acquisition and disposal of securities, as well as to relevant information disclosure, are listed in the Policy on personal holding and trade of securities by ACRA’s employees.

7. Managing Conflicts of Interests in provision of Additional Services

7.1. ACRA provides Additional Services only if they do not create a Conflict of Interests in the course of Rating Activities.

7.2. The composition and provision procedure for ACRA Additional Services is subject to agreement with the Bank of Russia, as prescribed by the relevant regulation.

8. Managing Conflicts of Interests in provision of Additional Services by ACRA subsidiaries

8.1. In order to prevent conflicts of interest in the provision additional (analytical) services by legal entities belonging to the group of entities associated with ACRA (hereinafter referred to as subsidiaries), ACRA guides itself according to the following principles:

8.1.1. ACRA analysts shall be segregated from analysts of such subsidiary and shall not participate in services provided to ACRA;

8.1.2. Such subsidiary shall have separate databases, IT platforms, analytical software, and client document flows;

8.1.3. Deliverables of such services shall not be taken into account in the rating processes of ACRA.

8.2. The CICS and the Board of Directors of ACRA shall ensure supervision over the segregation procedures and the principle of independence of rating processes.

8.3. ACRA and its subsidiaries shall comply with the Code of Ethics and Professional Conduct and other relevant internal documents of ACRA.

9. Protection of Confidential Information

9.1. To eliminate Conflicts of Interests, ACRA employees that have access to Confidential Information shall not be entitled to use or transfer it to other individuals (including those who are not ACRA employees) in order to make transactions with securities and for other purposes unrelated to their professional duties. The requirements for handling Confidential Information are outlined in the Policy on Handling Confidential Information.

10. Part-time job and external occupation

10.1. A Rating Analyst does not have the right to hold a position in the management body of a Rated Entity or any entity that exercise control over it or significantly influence it within six months from the moment of the latest Rating Action with regard to the rated entity, in which he took part as a Rating Analyst.

10.2. To eliminate Conflicts of Interests, ACRA employees cannot have a part-time job that can lead to an on-going or potential Conflict of Interests with their duties as ACRA employees.

10.3. ACRA employees, who (1) want to combine employment in ACRA with another occupation that does not lead to a Conflict of Interests with their current employment (e.g. academic work), (2) plan to receive any external remuneration (on a one-time or regular basis), e.g. obtain payment for the victory in sport activities, academic grant funding, an author’s royalty, etc, are obliged to obtain authorization of ACRA CEO with notification of the CICS.

11. Policy on presents and participation in events

11.1. Employees of the Analytical Unit, Methodology Group, Compliance and Internal Control Service, as well as employees responsible for business development and operating issues of ACRA, regardless of their job position, are prohibited to ask for (demand) or receive from legal entities (or their representatives) that ACRA has or may potentially have business relationship with in regards to Credit Ratings or Additional Services, money, presents, entertainment, any services or property, regardless of their price, as well as to give presents to these entities. During the business meetings, it is allowed to use stationary of the recipient party and receive snacks and drinks from it that is worth up to a maximum amount of RUB 500.

11.2. If a present was received by an ACRA employee listed in Clause 11.1., the employee must inform ACRA’s Compliance and Internal Control Service. The present must be returned to the presenter, given away for charity or eliminated under a protocol. An employee, who received the present, shall inform the presenter regarding the present Policy with a request not to send presents in the future.

11.3. The Analytical Group employees are prohibited from participating in corporate or entertainment events paid for by a third party, except the following cases: (1) the conference or other business event sponsor pays the participation of an ACRA Analytical Group employee as a panel participant, moderator, or speaker; (2) the third party covers the expenses incurred by such an employee in accordance with an ACRA-approved agreement.

11.4. All employees of ACRA can take part in any open and free business events.

11.5. Employees of ACRA, who are not in its Analytical Unit, have the right to participate in business events that are paid for by a third party.

12. Revision of Credit Ratings and Credit Rating Outlooks upon detection of a Conflict of Interests

12.1. In case:

a) of detection of failure to meet the requirements listed in paragraphs 3.1.1.-3.1.7. of the present Policy, or other violations that led to a Conflict of Interests when exercising Rating Activity;

b) a Rating Analyst after the termination of his employment has found employment in a legal entity towards which he performed rating analysis, or interacted with it regarding other questions associated with the Rating Activity;

ACRA immediately decides whether there are grounds for revision of the assigned Credit Ratings or Credit Ratings Outlook and, if such grounds are found, performs its revision under the procedures, envisaged in internal documents of ACRA.

11.2. In case of failure of the Rating Analyst to meet the requirements of Article 10 «Policy on presents and participation in the events» of the present Policy, ACRA within a period of one month carries out i) the verification of his actions that could have affected Credit Ratings or Credit Ratings Outlooks and were taken three months prior to and after receiving the present, and ii) the revision of Credit Ratings and Credit Ratings Outlooks, in an order described in internal documents of ACRA.If a present was received by an ACRA employee listed in Clause 10.1., the employee must inform ACRA’s Compliance and Internal Control Service. The present must be returned to the presenter, given away for charity or eliminated under a protocol. An employee, who received the present, shall inform the presenter regarding the present Policy with a request not to send presents in the future.

13. Storage of documents and materials

13.1. ACRA shall store internal data and documents which were used at the time of assigning the Credit Ratings for a period of time set by the Bank of Russia, and at least for 5 years, and shall ensure their completeness, accuracy and reliability in order to be able to verify the correctness of performed Rating Actions. Detailed requirements for the storage of documents contained in an internal document of ACRA, governing the requirements to ensure proper storage of internal data and documents.

14. Disclosure of Conflicts of Interests

14.1. ACRA shall disclose information about Conflicts of Interests in cases where it may affect the analysis and judgments of Credit Rating Analysts.

15. Disclosure of Conflicts of Interests

15.1. The Compliance and Internal Control Service shall monitor compliance with the present Policy. ACRA conducts an annual assessment of the effectiveness of the rules and procedures set forth in this Policy, in the manner prescribed by the internal documents of ACRA.

15.2. Failure to comply with this Policy may cause a disciplinary action, including the termination of employment.

15.3. When receiving data that an ACRA employee has committed (is committing) illegal, unethical actions or those that violate this Policy or when there are reasonable suspicions that such actions have been committed, every ACRA employee must report such information to the CICS. ACRA shall view any failure to provide information about some other ACRA employee committing illegal, unethical actions in breach of this Policy or ACRA internal documents (provided that the employee comes to knowing such information) as complicity in such an action.

15.4. ACRA employees may use anonymous whistleblowing to the CICS on discovered violations.

15.5. Disciplinary measures against an ACRA employee can be lightened if the offender volunteers to report his or her violations of the Russian legislation or the present Policy.

16. Familiarization and regular certification

16.1. New employees of ACRA must undergo familiarization with this Policy within 10 working days from the date of enrollment in the staff of ACRA.

16.2. In order to maintain the proper level of awareness and corporate culture, all ACRA employees on an annual basis are required to undergo re-acquaintance with the valid version of this Policy by signing a special form.

17. Final provisions

17.1. Any changes or additions to the Policy, shall be documented in a written form and coordinated with the CICS and the Board of Directors.

17.2. Any deviations from the requirements of this Policy leading to a violation of legal acts of the Russian Federation and Bank of Russia requirements are not allowed. Should any changes to the legislation of the Russian Federation or Bank of Russia bylaws come in contradiction with certain clauses of this Policy, such clauses shall become invalid, and until they are duly amended employees at ACRA shall be governed by the legislation of the Russian Federation.

17.3. Employees of ACRA must inform the CICS about any violations of this Policy, as well as about any violations of requirements of legal acts of the Russian Federation or Bank of Russia requirements.

17.4. The Policy shall come into force from the moment of its approval by ACRA’s Board of Directors and publication on ACRA’s website www.acra-ratings.com and shall be in force until the publication of an updated document or another document replacing it.

17.5. This Policy shall be revised on an as per needed basis, but not less frequently than once every 3 years.

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