Training on modelling fundamentals December 17–18

Code of Ethics and Professional Conduct

Introduction

General provisions

Credibility among investors, issuers and other financial market participants is the most crucial factor in the activities of credit rating agencies.

Seeking to gain, keep, and strengthen the credibility of its activities, Analytical Credit Rating Agency (hereinafter referred to as ACRA or the Agency) has drawn up and adopted this Code of Ethics and Professional Conduct (hereinafter referred to as the Code). The Code contains a description of fundamental guiding principles for ACRA employees to perform their Rating Activities or providing additional services (hereinafter referred to as the Principles). 

The Principles have been developed in compliance with the requirements of the Federal Law of 13 July 2015 No 222-FZ “On the Activities of credit rating agencies in the Russian Federation, On the amendments to Article 76.1 of the Federal Law ‘On the Central Bank of the Russian Federation (Bank of Russia)’ and the invalidation of certain provisions of legal acts of the Russian Federation,” as well as the statutory regulations of the Bank of Russia, the fundamental principles of credit rating agencies formulated by the International Organization of Securities Commission (IOSCO) in the Code of Conduct Fundamentals for Credit Rating Agencies and Principles Regarding the Activities of Credit Rating Agencies.

The ACRA principles are set forth in the following three sections:

1) Quality and Objectivity of Rating Activities,

2) Independence and Prevention of Conflict of Interests,

3) Transparency and Protection of Confidential Information.

The Code requirements shall be taken into account in the development of ACRA internal policies, regulations, and procedures. In order to ensure maximum credibility among investors, issuers, and other market participants, each ACRA employee, including its management, shall be responsible for ensuring high standards of good faith and quality of their work, knowledge of and compliance with government regulations of the Russian Federation, the Bank of Russia, this Code, ACRA internal policies, regulations, and procedures.

In order to maintain the proper level of awareness and corporate culture, all ACRA employees must make themselves familiar with this Code on an annual basis and sign off in a special ledger.

Compliance and Internal Control Service shall exercise control over compliance by ACRA employees with this Code, as well as internal policies, regulations, and procedures. Any deviations from this Code should be documented in writing and approved by the Board of Directors. Any deviations from the Code resulting in a breach of requirements contained in government regulations of the Russian Federation and the regulator’s requirements shall not be allowed.

Rating Activities and limitations to ACRA activities

ACRA Credit Ratings reflect ACRA’s subjective opinions on the ability of Rated Entities to meet their financial obligations or on the credit risks of their specific financial obligations or instruments. These ratings reflected on the Rating Scale, is aimed at assisting investors and other users of credit ratings in their assessments of credit risks they may face in their activities.

Rated Entities may be legal and public-law entities which are located in the Russian Federation (RF) or perform a major part of their operations in the RF and whose ability to meet their financial obligations (creditworthiness) is implicitly or explicitly evaluated by their credit rating.

ACRA shall assign Credit Ratings on the grounds of resolutions passed by the Rating Committee and based on the analysis made in accordance with Methodologies available to the general public. In its ratings, ACRA shall remain independent from the current economic and political environment. 

ACRA Credit Ratings shall be assigned by employing all the suitable information at hand, which, in ACRA’s opinion, may have an impact on the credit rating assigned with the use of this Methodology. ACRA and its employees shall not be responsible for the accuracy of information provided by the Rated Entity or issuer or any other related third party.

ACRA shall not provide any consulting services. ACRA may render additional services as long as it does not create a potential Conflict of Interests in the course of Rating Activities. ACRA shall agree the list of its additional services with the Bank of Russia in line with the procedure established by the latter.

List of terms and abbreviations

ACRA — Analytical Credit Rating Agency (Joint-Stock Company).

Leading Rating Analyst — a Rating Analyst whose main responsibilities include interaction with the Rated Entity on a specific Credit Rating, as well as reparation of documents and motions for the Rating Committee with regards thereto.

CEO — an ACRA employee performing the functions of the sole executive body.

Code — the Code of Ethics and Professional Conduct, this document.

IOSCO Code — the IOSCO Code of Conduct Fundamentals for Credit Rating Agencies.

Confidential information — any information not intended for  distribution to the general public, including: (1) information of non-public nature submitted by contractors for the implementation of agreement-stipulated Rating Actions; (2) material information of non-public nature received from any source; (3) details and implementation plans of specific Rating Actions; (4) unpublished press releases with respect to Rating Actions, unpublished research reports, and forecasts; (5) information of non-public nature related to operations of the Rating Committee; (6) details of contractor agreements on rating and other services; (7) internal non-public financial information; (8) company business strategy, description of internal business processes, and other know-how; (9) insider information in accordance with the definition by the Bank of Russia legal act; (10) personal data of ACRA employees and employees of the Agency’s contractors.

Conflict of Interests — a situation in which personal interest (direct or indirect) of ACRA, its shareholders, Rating Analysts, other ACRA employees and entities exercising control or having significant influence thereon, may adversely affect the independence or objectivity of ACRA (including the process of assigning Credit Ratings or Credit Rating Outlooks) and entail other negative consequences for ACRA, ACRA employees and (or) the Rated Entities.

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.

Methodology (Credit Rating 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.

Methodology Group — an ACRA business unit responsible for developing, testing, validation, and actualization of Methodologies, controlling and monitoring the implementation of Methodologies in the course of Rating Activities, as well as ensuring the adequacy of Methodology application. The Methodology Group is independent in its activities from Rating Analysts. Methodology Group activities are subject to ACRA internal regulations.

Methodology Committee — a set of selected staff and Methodology Group, including the Chairman of the Methodology Committee, which determines the need to develop new Methodologies and engaged in their approval, as well as addressing other issues within the competences prescribed by the “Regulation on Methodology Committee.”

Unsolicited Credit Rating — a Credit Rating assigned by ACRA without concluding an agreement with the Rated Entity.

Rating Object — the Rated Entity and (or) its financial obligations (creditworthiness, financial security, financial stability) or financial instruments.

IOSCO Principles — IOSCO Principles Regarding the Activities of Credit Rating Agencies.

Chairman of the Rating Committee — a Rating Analyst who is in the position of at least a Director and exercises control over compliance with the Regulations on the Rating Committee in the course of the Rating Committee’s work.

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

Rating Activities — permanent professional activities, which consist as a whole of preparing, assigning, affirming, revision 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.

Rating Actions — any of the events below with regard to the Credit Rating or to the Credit Rating Outlook: preparation, assignment, affirmation, revision or withdrawal.

Rating Analysis — a set of actions taken by Rating Analysts in compliance with ACRA’s internal documents and related to interaction with the Rated Entity (incl. Rating Meetings), preparation of materials for the Rating Committee, including the required quantitative and qualitative analysis of all available to ACRA information regarding the Rated Entity, which in ACRA’s opinion may affect the Credit Rating assigned based on a Methodology, as well as initiation of a Rating Committee meeting for implementation of Rating Actions.

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

Rated Entity — a legal or public-law entity whose ability to meet its financial obligations (creditworthiness, financial reliability, financial stability) is directly or indirectly assessed in a Credit Rating.

Rating Process — a set of actions undertaken in the framework of a Rating Activity, including: selection and appointment of Rating Analysts to perform and implement a Rating Analysis, holding a Rating Committee and the adoption of its resolutions with regards to implementing Rating Actions, interaction with the Rated Entity/issuer or its representatives and, where appropriate, publication of the Credit Rating on the ACRA website.

Rating Scale — a system of rating categories applied by ACRA to classify Credit Rating levels.

Compliance and Internal Control Service — an ACRA unit which performs the functions of an internal control body. 

Federal Law — Federal Law No. 222-FZ, dated July 13, 2015, “On the Activities of Credit Rating Agencies in the Russian Federation, On the Amendment to Article 76.1 of the Federal Law ‘On the Central Bank of the Russian Federation (Bank of Russia)’ and the invalidation of certain provisions of legal acts of the Russian Federation.”

Security — a tradable financial instrument representing a tradable asset. In this document, the term "Securities", includes but not limited to this enumeration: shares, bonds, promissory notes, and derivative financial instruments (including futures, options, swaps, etc.).

Fundamental principles

Quality and objectivity of Rating Activities

1.1.Quality of Rating Activities

1.1.1. ACRA shall ensure the development, record keeping, approval, timely updates, and application of its Methodologies for all types of Rated Entities or obligations, with respect to which it performs its Rating Activities. 

1.1.2. In its Rating Activities, ACRA shall develop and use a systemic set of Methodologies and internal regulations describing procedures for regular verifications of credibility of published Credit Ratings (e.g. through the use of historical data).

1.1.3. Assigned Credit Ratings shall reflect all information related to the Rated Entity that is made available to ACRA, including information obtained from third parties and recognized by ACRA as material in each case. In the course of Rating Actions, ACRA shall analyze this information by applying its approved Methodologies. ACRA shall develop, approve, update, and apply internal regulations to ensure a comprehensive and thorough analysis of the above information while laying groundwork for Credit Ratings.

1.1.4. In order to maintain the high quality of its performance, ACRA shall undertake all reasonable measures aimed at ensuring the proper level of competencies and expertise inside the Agency and using proper quality information obtained from reliable sources. ACRA shall not assign Credit Ratings to Rated Entities or obligations, for which it lacks proper quality information or the required level of competencies and expertise.

1.1.5. If information for Rating Activities is insufficient and/or its reliability is questionable, ACRA shall not assign a Credit Rating. If a Credit Rating was assigned earlier, ACRA shall withdraw the Credit Rating without a simultaneous decision of assigning a new Credit Rating to the Rated Entity.

1.1.6. While assessing creditworthiness, Rating Analysts shall use the relevant ACRA Methodology for the type of Rated Entity or obligation in question. If ACRA does not have a suitable Methodology in place, ACRA reserves the right not to assign a Credit Rating. If a decision is taken, which limits the application of approved Methodologies with respect to a Rated Entity, ACRA shall include relevant remarks in all publications with regards to the Rated Entity until appropriate Methodologies are developed and approved.  

1.1.7. ACRA shall determine the values of categories and notches within each Rating Scale it employs, and apply those to all types of Rated Entities or obligations, for which the Rating Scale may be used.

1.1.8. All Credit Ratings issued by ACRA shall be assigned on behalf of ACRA as a legal entity (rather than on behalf of the Rating Committee, an individual Rating Analyst or some other ACRA employee).

1.1.9. While developing its opinion on a Credit Rating, ACRA shall engage those Rating Analysts who separately or jointly (while serving on the Rating Committee) have all required knowledge and relevant experience in the area of creditworthiness assessment for the type of Rated Entity or obligation in question.

1.1.10. ACRA shall store internal data and documents, which were used at the time of Credit Ratings assignment, for time frames set forth by the Bank of Russia but not less than 5 years, and ensure their integrity, accuracy, and reliability in order to be able to verify the feasibility of performed Rating Actions. All internal data and documents shall be stored to ensure the objectivity of ACRA’s Rating Activities, as well as to back up the processes of internal audit, compliance control, and quality control.

1.1.11. ACRA shall develop, update, approve, and implement internal regulations aimed at ensuring proper storage of internal data and documents used for the assignment of Credit Ratings.

1.1.12. ACRA shall develop, update, approve, and implement internal regulations aimed at minimizing the risk of questionable creditworthiness assessments of Rated Entities. ACRA and its Rating Analysts shall take all the necessary measures to prevent formulation and issue of Rating Analyses, which may distort the final findings or otherwise misrepresent the creditworthiness, financial stability, or financial reliability of a Rated Entity.

1.1.13. ACRA shall maintain sufficient material and human resources to ensure high quality creditworthiness evaluations of all Rated Entities. When resolving to assign or review a Rated Entity’s Credit Rating or obligation, ACRA shall assess its own ability to allocate task-sufficient personnel equipped with proper expertise in the area of analyzing the given type of Rated Entity or obligation, as well as provide it with all the necessary information.

1.1.14. To maintain the proper level of professionalism, each ACRA Rating Analyst shall undergo training annually according to ACRA internal documents.

1.1.15. The Methodology Group permanently operating within ACRA shall perform the following functions:

a) develop, approve, and regularly review its Methodologies and other internal documents within its competencies (within the framework of resolutions taken by the Methodology Committee);

b) pilot test, analyze, and validate its Methodologies, and follow it up with appropriate reporting;

c) assess the feasibility of its Methodologies with regards to the Methodology Group members serving as Rating Committee invitees;

d) assess the overall viability and applicability of its current Methodologies with relation to Rated Entities or obligations, for which their applicability is limited; 

e) evaluate whether the applicability of the approved Methodologies for Credit Ratings of products of structured financing, project financing, and public-private partnerships, in the context of drastic risk level fluctuations of underlying assets included in the collateral value backing such issuances, fluctuations, of transaction counterparty risk, and other inherent risks.

1.1.16. ACRA shall form Rating Committees with due regard to ensuring a continuous and unbiased Credit Rating Process. ACRA internal documents shall contain requirements for its Rating Committees operational procedures and composition of Rating Committees.

1.1.17. Any Rating Actions shall be undertaken only by the functioning Rating Committees in accordance with ACRA internal policies and procedures, and with due regard to legislative requirements of the Russian Federation and Bank of Russia’s legal acts. Individual Rating Analysts or groups of Rating Analysts cannot perform Rating Actions outside the remit of a Rating Committee.

1.1.18. ACRA shall ensure the availability of material and human resources sufficient for monitoring and timely updates of its Credit Ratings. Credit Rating monitoring is performed on the basis of available information, with due regard to the product specifics and with reliance on the expertise and experience, accumulated by the agency.

1.1.19. Credit Rating revisions shall be carried out within the timelines set forth by the federal legislative requirements and ACRA’s internal regulations.

1.1.20. In order to keep its Credit Ratings up-to-date, ACRA shall regularly monitor the public sources of information it employs and the information it receives from Rated Entities.

1.1.21. The frequency of Credit Rating Actions can be influenced by various reasons, including:

  • Emergence of new information related to the Rated Entity;
  • Changes in the current legislation of the Russian Federation;
  • Macroeconomic or industry changes that affect separate groups of Rated Entities;
  • Changes in the ACRA Methodologies and other internal documents;
  • Special requests from the Compliance and Internal Control Service;
  • Errors made by the team during the Rating Process or Methodology application and later detected by the Leading Rating Analyst, which could affect the assigned Credit Rating.

1.1.22. ACRA shall develop, update, approve, and implement its internal documents and procedures, which regulate the principles of disseminating information on assigned Credit Ratings and related publications, as well as on Credit Rating withdrawals.

1.2. Objectivity and good faith of Rating Activities

1.2.1. ACRA and its employees shall interact with Rated Entities, issuers, originators, underwriters, and placement agents of rated obligations (hereinafter, underwriters and agents) as well as users of its Credit Ratings on the principles of integrity, impartiality, and the information confidentiality.

1.2.2. ACRA Rating Analysts shall adhere to high standards of integrity and honesty. In accordance with its internal policies, ACRA shall forbid individuals that show signs of deviation from these standards to participate in its Rating Analyses and meetings of its Rating Committee.

1.2.3. ACRA and its employees cannot give (explicitly or implicitly) to Rated Entities, issuers, originators, underwriters, and agents, as well as users of Credit Ratings any guarantees or caution them with regards to certain Credit Rating levels as a result of Rating Actions.

1.2.4. With relation to future Rating Actions, ACRA and its employees are forbidden to influence Rated Entities, issuers, originators, underwriters, and agents when it comes to service payments in exchange for Credit Rating assignments or other services, by making promises or giving warnings in excess of those stipulated in the agreement.

1.2.5. In dealing with any third party, ACRA employees are forbidden to give any suggestions or recommendations with regards to activities of Rated entities or issuers, as well as transactions aspects that can affect the Credit Rating of the Rated Entity or obligation, including but not limited to suggestions or recommendations on corporate structure, legal form, assets, liabilities, organization of business processes, investment plans, lines of financing, company merges, structure of issues, and form of structural finance related products.

Despite the above limitations, in dealing with third parties, ACRA employees can discuss and clarify its Methodologies and precedents of the earlier assigned ratings to them, inter alia in the form of conferences or panel discussions.

1.2.6. ACRA and its employees shall fully comply with the requirements of the Russian legislation, this Code, and ACRA internal regulations and make reasonable efforts to be informed about the up-to-date legislative requirements. If individual provisions of this Code or ACRA internal regulations are in conflict with the requirements of Russian legislation or the Bank of Russia legal acts, those provisions of the Code or internal regulations shall be deemed invalid, and until the relevant chapters of such documents are duly amended, ACRA employees shall comply with the Russian legislation and the Bank of Russia legal acts, while seeking to the greatest possible extent observe the interests of the investment community.

1.2.7. In order to ensure that ACRA and its employees act in compliance with the requirements of the Russian legislation, the Bank of Russia legal acts, this Code, and ACRA internal regulations, the Agency shall organize and ensure the proper functioning of a Compliance and Internal Control Service that shall report to the Board of Directors, in accordance with the ACRA internal documents with the requirements set forth by the Bank of Russia.

1.2.8. The main responsibilities of the Compliance and Internal Control Service are as follows:

  • ensuring the accuracy of Credit Ratings assigned by ACRA;
  • ensuring the independence of ACRA Rating Activities from any political and/or economic influence;
  • identification, prevention, and management of Conflict of Interests;
  • ensuring the integrity, reliability, and timeliness of reporting to both internal and external users;
  • risk management with relation to ACRA operations, including regulatory risk management;
  • ensuring the effectiveness of ACRA operations.

1.2.9. In charge of the Compliance and Internal Control Service is the Head of Service, whose position functionally reports and is accountable to the Board of Directors.

1.2.10. At the time and throughout his appointment, the Head of Compliance and Internal Control Service shall comply with the business reputation requirements stipulated by the Federal Law and the Bank of Russia legal acts. Candidates for this position shall be approved by the Bank of Russia in line with the procedure set forth by the Bank of Russia.

1.2.11. Compliance and Internal Control Service employees cannot serve as members of the Methodology Committee or the Rating Committee. Compliance and Internal Control Service employees have the right to participate in the above committee meetings as non-voting invitees (observers).

1.2.12. Remuneration of the Compliance and Internal Control Service Employees shall not depend on earnings made by ACRA.

1.2.13. When an ACRA employee becomes aware of another ACRA employee committing (or having committed) any illegal or unethical acts that violate this Code or other ACRA internal regulations, or has reasons to suspect any such activity, he or she is obligated to bring these facts to the attention of the Compliance and Internal Control Service. ACRA Compliance and Internal Control Service shall take all counter measures stipulated by the current legislation, this Code, and other ACRA internal documents in response to the revealed violations with the purpose of their elimination, as well as in the area of managing conflict of interests in the course of Rating activities. Failure on the part of an ACRA employee to report any illegal, unethical actions by an ACRA employee, or actions in violation of this Code or ACRA internal regulations (provided that the employee had such information) shall be deemed as complicity in the above actions.

1.2.14. As specified by ACRA internal regulations, its employees are at liberty to follow the ACRA Anonymous Whistleblowing Procedure to inform the Compliance and Internal Control Service of any violations.

1.2.15. 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 Code.

Independence and prevention of Conflict of Interests

2.1. General requirements

2.1.1. ACRA shall take all necessary measures to prevent its Credit Ratings and Credit Rating Outlooks from being affected by an existing or potential Conflict of Interests inside the Agency, among its founders, Rating Analysts, other ACRA employees, and those parties that exercise control over or have significant influence on the Agency. 

2.1.2. ACRA shall carry out its Rating Actions regardless of potential economic, political, or other consequences of such actions with respect to ACRA, Rated Entities, issuers, investors, originators, agents, underwriters, or other market participants.

2.1.3. ACRA and its Rating Analysts shall use their professional judgment and discretion as the basis for ensuring compliance with the principles of independence and objectivity of their actions.

2.1.4. ACRA Methodologies are not exhaustive in terms of accounting for all risk factors, as they are meant to be applicable to a wide range of Rated Entities. Rating Analysts shall perform fundamental analyses of Rated Entities and are authorized to take into account other additional risk factors applicable to a specific Rated Entity along with key factors specified in the ACRA Methodologies. However, Rating Analysts shall not perform Rating Analyses based solely on factors that are not specified in the ACRA Methodologies.

2.1.5. Credit Ratings assigned by ACRA shall not depend on the existence of potential business relationships and affiliations, or lack thereof, between ACRA (or its affiliates) and Rated Entities, issuers, investors, originators, underwriters, agents (or their affiliated entities), or any other third parties.

2.1.6. ACRA Rating analysts shall be institutionally and technologically separated from the ACRA founders (shareholders, participants), as well as from all the other departments within ACRA, including subdivisions and employees responsible for advertising, customer acquisition, and Rating Actions contract negotiations.

2.1.7. In order to prevent Conflict of Interests in the course of providing additional services, ACRA shall develop and enforce a set of internal documents aimed at reducing the likelihood of Conflict of Interests with relation to such services. ACRA shall obtain the Bank of Russia’s approval for the list of its additional services in accordance with the regulations set forth by the Bank of Russia.

2.2. Policies and procedures for the prevention of Conflict of Interests

2.2.1. ACRA shall develop, approve, update, and implement internal regulations governing the rules and procedures for the identification, management, and disclosure (where appropriate) of any existing or potential Conflict of Interest that may influence the ACRA Methodologies or Rating Actions, or the professional judgement of individual ACRA employees that carry weight in the assignment of Credit Ratings or Credit Rating Outlooks. ACRA shall perform annual assessments of the effectiveness of such rules and procedures in the manner set forth by its internal regulations.

2.2.2. Disclosure of an existing or potential Conflict of Interest shall be complete, timely executed, clear, concise, specific, and conspicuous. When a Conflict of Interest is associated with a specific Rating Action, information thereabout shall be disclosed in a note to the publicly released rating report on the results of such Rating Action.

2.2.3. ACRA and its employees do not have the right to own Securities or engage in any transactions with Securities if such actions can potentially lead to a Conflict of Interests in the course of Rating Activities. A detailed list of requirements to ACRA employees with respect to owning Securities and engaging in Security transactions is set forth in ACRA internal regulations, specifically in the "Policy on Securities Ownership and Trading by ACRA Employees.”

2.3.Independence of ACRA employees

2.3.1. In order to ensure the independence of Credit Ratings and Rating Analysts from its founders, management, as well as from departments and employees responsible for advertising, customer acquisition, and Rating Actions contract negotiations, ACRA Compliance and Internal Control Service shall exercise control over the implementation of the internal rules and procedures set forth in accordance with Clause 2.2.1 of this Code.

a) Accountability of ACRA employees and their remuneration procedure is structured in such a way as to either prevent the existing or potential Conflict of Interests, or effectively manage it.

b) The amount of remuneration received by ACRA employees involved in Rating Activities or otherwise influencing the process of assigning Credit Ratings to a Rated Entity or obligation may not be linked to the size of revenue that ACRA receives from this Rated Entity or issuer.

2.3.2. For ensuring that the risk of bias of the process of assigning Credit Ratings stays on a safely acceptable level, ACRA shall conduct periodic revisions of its internal regulations regarding remuneration of ACRA employees capable of influencing the Credit Rating assignment process.

2.3.3. ACRA employees involved in Rating Actions or in any way capable of influencing the Credit Rating assignment process, or members of the Methodology Group, shall not simultaneously be involved in the interaction with Rated Entities, issuers, placement agents or their representatives (as well as their affiliated entities) on the issues of charges and/or fees for rating services provided by ACRA to the above listed entities.

2.3.4. Heads of departments responsible for customer interaction can employ Lead Rating Analysts for resolving individual conflict situations with clients, but on a one-time basis only. Information about this shall be disclosed to the Compliance and Internal Control Service in order to prevent Conflict of Interests.

2.3.5. ACRA shall not assign Credit Ratings or Credit Rating Outlooks and shall disclose information on the existing or potential influence on an already assigned Credit Ratings or Credit Rating Outlooks in case when ACRA directly or indirectly holds financial instruments or other assets of the Rated Entity.

2.3.6. An ACRA employee may not directly or indirectly participate in the process of assigning Credit Ratings or Credit Rating Outlooks or influence this process in any way, if such employee, his (her) child, spouse, or a legal entity controlled by this employee, his (her) child or spouse (including a trust):

a) owns or performs transactions with the Securities issued by the Rated Entity or entities exercising control over or having significant influence on such Securities[1];

b) owns or performs transactions with Securities issued by any legal entity affiliated with the Rated Entity, which causes or may cause a Conflict of Interests that ACRA deems unacceptable;

c) owns or performs transactions with Securities issued by the lead underwriter, originator, agent, or SPV, which causes or may cause a Conflict of Interests that ACRA deems unacceptable;

d) currently has or had in the past any other relationship with the Rated Entity or any legal entity affiliated therewith, which causes or may cause a Conflict of Interests that ACRA deems unacceptable.

2.3.7. Rating Analysts, their children and spouses, and any legal entities they have control over (including trusts) are prohibited from investing or performing transactions with Securities issued by entities that fit the profile of the Analytical Group, which the Rating Analyst is a member of, regardless of such Securities being an object of a Rating Action carried out at the time of the transaction, or the Issuer (or Security) having a Credit Rating earlier assigned by ACRA.

2.3.8. Rating Analyst may not participate in the process of assigning Credit Ratings or Credit Rating Outlooks or have any influence on this process, if he (she) is a close relative (parent, sibling, or child) as well as a spouse, parent, or child of an employee of the Rated Entity or any or any third entity exercising control thereof or having significant influence thereon, which may result in a Conflict of Interests.

2.3.9. Rating Analysts shall not participate in the process of assigning Credit Ratings or Credit Rating Outlooks or have any influence on this process, if he (she) was used to be employed by or had a business relationship with the Rated Entity within one calendar year prior to the Rating Action date.

2.3.10. To prevent Conflict of Interests, ACRA employees shall not hold any parallel employment outside of ACRA that may cause an ongoing or potential Conflict of Interests with their duties as ACRA employees.

2.3.11. Other reasons for a Conflict of Interests in the course of Rating Actions can also be personal relationships of ACRA Rating Analysts and other ACRA employees that can influence the process of assigning Credit Ratings or Credit Rating Outlooks (for instance, with an employee of a Rated Entity, issuer, originator, underwriter, agent or a company that is in competition with ACRA and/or offers similar services). Any ACRA employee that maintains personal relationships, which may cause an ongoing or potential Conflict of Interests shall report the fact of such relationship to Compliance and Internal Control Service. Upon receiving this information, Compliance and Internal Control Service shall take all necessary steps to minimize the Conflict of Interests risk associated with the employee in question.

2.3.12. In cases when:

a) A violation of the requirements specified in Clauses 2.3.5-2.3.11 of this Code, or other violations that resulted in a Conflict of Interests in the course of Rating Actions are detected;

b) A Rating analyst after leaving ACRA is employed by the legal entity with respect to which he (she) had performed rating analyses or interacted with this entity on other Rating Activity related issues;

ACRA shall immediately determine whether there are grounds for revising the assigned Credit Ratings or Credit Rating Outlooks, and, if such grounds exist, revise those in the manner stipulated by ACRA internal regulations.

2.3.13. ACRA shall establish a rotation procedure, i.e. a regular change of Leading Rating Analysts involved in the preparation of Credit Rating and/or Credit Rating Outlooks with respect to the same Rated Entity (or one of the beneficiaries[2] of structured financial product ratings).

2.3.14. Leading Rating Analysts are prohibited from serving as voting Rating Committee members on the same Rating Objects (or beneficiaries of the rating for structured financial products) for more than four years in a row and for more than five years in a row with relation to sovereign ratings. Leading Rating Analysts, who no longer participate in Rating Actions with respect to a Rating Object due to rotation, are not entitled to serve as voting Rating Committee member on the Rating Object in question for two years following the rotation date.

2.3.15. Employees of ACRA Analytical Group, Methodology Group, Compliance and Internal Control Service, Business Development and Operations, regardless of their role inside the Agency, must not ask or demand from legal entities with which ACRA is or could potentially be in a business relationship with regards to Credit Rating assignment (or representatives of such entities) the following: money, gifts, entertainment, services, or property regardless of their value, or give gifts to the above-listed entities. During business meetings, ACRA employees are allowed to use office supplies of the inviting party and accept drinks or snacks in the amount of 500 rubles or less.

2.3.16. 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.

2.3.17. In cases when ACRA employees violate the requirements set forth in Clauses 2.3.15-2.3.16 of this Code, within one month since the violations occurred, ACRA shall: (1) perform an audit of such employee’s action that may have affected Credit Ratings or Credit Rating Outlooks assigned three months prior and three months after the gift is accepted; (2) revise its Credit Ratings or Credit Rating Outlooks if grounds for such revisions exist, in the manner set forth in ACRA internal regulations.

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[1] The terms "Control" and "Significant influence" shall be determined in accordance with International Financial Reporting Standards recognized inside the Russian Federation.

[2] The procedure for determining a “beneficiary” of a structured finance product rating is outlined in the ACRA internal regulations.

3. Transparency and protection of Confidential Information

3.1. Transparency and Disclosure of Credit Ratings and other information

3.1.1. ACRA shall help investors and other Credit Rating users to understand as well as possible the essence of Credit Ratings by explaining in clear and simple terms, among other things, their nature, limitations and risks related to excessive reliance on Credit Ratings in the course of making investments or taking other financial decisions based predominantly on them.

3.1.2. ACRA shall ensure transparency of interaction with investors, Rated Entities, issuers, originators, underwriters, and organizers regarding the Credit Ratings assigned.

3.1.3. ACRA shall publicly disclose information on its official website www.acra-ratings.com

3.1.4. On a permanent basis, ACRA shall disclose the following information:

a) a list of Credit Ratings, Credit Ratings Outlooks, as well as the list of withdrawn Credit Ratings;

b) a list of existing or potential Conflicts of Interests;

c) a list of additional services provided;

d) Credit Ratings disclosure rules and rules relating to other related announcements, including Credit Rating Outlooks;

e) a pricing policy description of, including approaches to various types of rated objects;

f) Methodologies, models (including their calculation and building methods), key rating assumptions, lists of all quantitative and qualitative factors (with indication of limitations for analysts’ judgments regarding every such factor), and data sources;

g) a description of the Rating Scale applied;

h) Rating Actions procedures, including those used for assigning Unsolicited Credit Ratings;

i) this Code and other public documents of the Agency.

3.1.5. ACRA shall disclose the documents listed in Clause 3.1.4 or amendments to them as early as possible, but not later than three calendar days following their approval. And if relevant information is subject to agreement with the Bank of Russia – as early as possible following its approval with the Bank of Russia, but not later than three calendar days following such approval.

3.1.6. ACRA shall regularly disclose the following information:

a) historical data on default levels by rating categories of applied Rating Scales – every six months;

b) a list of Credit Ratings assigned over the past calendar year, with indication of the share of Unsolicited Credit Ratings in the total number of Credit Ratings assigned – annually;

c) a list of Rated Entities and other entities, proceeds from which amounts to 5 or more per cent of ACRA’s annual revenues as of end of past calendar year – annually;

d) if ACRA receives remuneration from a Rated Entity, issuer, originator, lead underwriter or organizer that is not related to the Rating Services it provides (for example, for additional services, provision of which has been agreed upon with the Bank of Russia), ACRA shall disclose the share of such remuneration in the total amount of remuneration paid by this entity for Rating Services.

3.1.7. ACRA shall annually, before March 31, disclose its Report on Transparency of Activities of the Credit Rating Agency for the past year. The report shall include the following information:

a) information about ACRA’s corporate and shareholder structure;

b) information about ACRA’s governance bodies and management;

c) description of principles of ACRA’s internal control bodies functioning;

d) statistical information about the distribution of Rating Analysts by types of rated objects and by Rating Actions related to assigning and reviewing Credit Ratings within the reporting period;

e) information about ACRA’s internal policy for documentation storage;

f) the results of ACRA’s annual inspections by the Compliance and Internal Control Service;

g) information about the rotation of Leading Rating Analysts for the reporting period;

h) information about ACRA’s revenues broken down by rating and other activities for the reporting period.

3.1.8. On a non-selective basis and as soon as possible ACRA shall ensure disclosure of information about Credit Ratings upon the results of Rating Actions taken. ACRA’s internal documents shall define the deadlines for disclosing information on Credit Ratings; however, these deadlines may not exceed the relevant deadlines set by the requirements of the legislation of the Russian Federation.

3.1.9. When publishing a Credit Rating assignment or review report ACRA shall specify:

3.1.9.1. dates of the first and last publication of a Credit Rating;

3.1.9.2. a Credit Rating Outlook;

3.1.9.3. the expected review period for Credit Rating Outlook;

3.1.9.4. the scale used for assigning a Credit rating (an international or a national scale);

3.1.9.5. rationale for a Credit Rating (Credit Rating Outlook), including a description of factors, causes and key assumptions that influenced the published Credit Rating (Credit Rating Outlook);

3.1.9.6. a reference to Methodologies applied to the assignment of such Credit Rating (Credit Rating Outlook);

3.1.9.7. all material information sources, including the Rated Entity; in some cases, ACRA may indicate other information sources used in the analysis, if such disclosure, in ACRA’s opinion, will provide greater transparency of analytical insights to investors/users of ACRA Credit ratings. If there is evidence of a significant discrepancy between information possessed by ACRA and the data present in officially published financial statements of the respective Rated Entity / Issuer, such facts shall also be disclosed;

3.1.9.8. a list of key rating assumptions used in preparing forecasts;

3.1.9.9. a list of key indicators and factors, whose changes the Credit Rating of the Rated Entity is sensitive to, as well as threshold levels of such indicators and factors;

3.1.9.10. participation or non-participation of the Rated Entity / Issuer or of the persons/entities that control or have a significant influence on them, in the Rating process;

3.1.9.11. a primary assignment of a Credit Rating, if the latter is assigned to a Rated Entity / liability for the first time;

3.1.9.12. provision of additional services to a Rated Entity / Issuer, if such services were provided;

3.1.9.13. any Conflicts of Interests that are not inconsistent with the Federal law, as well as other limitations pertaining to the Rating Analysis carried out, including any data regarding the quality of information about the rated object available to ACRA.

3.1.10. In case of a Credit rating withdrawal, ACRA discloses the relevant information via a press release. If the withdrawal was made without a simultaneous revision or confirmation of the Credit Rating or Credit Rating Outlook, the reason for abstaining from such revision shall be stated in the press release.

3.1.11. Before disclosing a Credit Rating or a Credit Rating Outlook ACRA sends to the Rated Entity a notice containing the information slated for disclosure in order to avoid any factual errors and exclude the possibility of Rated Entity’s / Issuer’s confidential information disclosure.

3.1.12. Disclosure of Credit Ratings and related messages is performed in accordance with ACRA internal documents.

3.1.13. If applicable, ACRA’s Credit Rating assignment reports may be accompanied by an analysis of possible losses on rated liabilities, and contain an indication of sensitivity of assigned ratings and creditworthiness assessments to changes in assumptions that were used in the Rating Analysis.

3.1.14. To differentiate Credit Ratings of structured products from other Credit Ratings, ACRA marks the former with a prefix “SF”, an abbreviation that precedes the usual alphabetical designation of a Credit rating.

3.1.15. In some cases, before publication of a Credit Rating, ACRA may provide the Rated Entity / Issuer with the opportunity to appeal the Rating Committee's decision. The procedure for preparation, submission, consideration and responding to appeals is outlined in ACRA internal documents.

3.1.16. If one of Rating Committee members disagrees with the proposed decision before the Credit Rating publication, an internal appeal procedure may be launched against the Rating Committee’s decision. The procedure for internal appeal filing is governed by ACRA internal documents.

3.1.17. ACRA shall mark Unsolicited Credit Ratings with a special symbol.

3.1.18. ACRA shall publish all material amendments to the applied Methodologies, indicating the causes and consequences of such amendments, including those for Credit Ratings (Credit Rating Outlooks) assigned using these Methodologies. Whenever possible, the amendments shall be disclosed in advance to allow market participants and the professional community to discuss them. ACRA carefully examines various options for using Credit Ratings before amending its Methodologies, practical procedures, rules and methods.

3.1.19. ACRA shall disclose information about errors detected in its applied Methodology if the detected errors affect Credit Ratings.

3.2. Confidential Information treatment requirements

3.2.1. ACRA and its employees shall use Confidential Information obtained from Rated Entities, issuers, originators, underwriters or organizers only for the purposes of its Rating Activities or provision of additional services related to Non-Credit Rating assignment.

3.2.2. Realizing the importance of information security in order to ensure customer confidence, ACRA and its employees shall take all reasonable measures to protect all available Confidential and/or other material non-public information against fraudulent actions, theft, illegal use or unintentional disclosure.

3.2.3. ACRA shall ensure protection of Confidential Information, including the one received from the Rated Entity or obtained in the process of ACRA activities, as well as protection of personal data in accordance with the requirements of the legislation of the Russian Federation and normative acts of the Bank of Russia.

3.2.4. Handling Confidential Information shall not allow:

  • ACRA employees to disclose (in whole or in part) any non-public information about rating assessments, except to the Rated Entity, the Issuer or third parties having Issuer’s consent to access such information, and except for cases defined by the requirements of the legislation of the Russian Federation;
  • ACRA employees to disclose (in whole or in part) any non-public information about future Rating Actions slated by the Agency;
  • disclosure (in whole or in part) of Confidential Information via press releases, conferences, as well as conversations with potential employers, investors, other issuers and other persons/entities;
  • ACRA employees to disseminate Confidential Information inside ACRA, except for those employees who need it in line with their job duties;
  • ACRA employees to disseminate Confidential Information transferred to the Agency by a Rated Entity or Issuer (originator, underwriter or organizer) among employees of ACRA affiliates;
  • the use or disclosure of Confidential Information obtained from Rated Entities, issuers, originators, underwriters or organizers and other third persons in breach of terms and conditions under which it was transferred to ACRA, except for cases defined by the requirements of the legislation of the Russian Federation.

3.2.5. ACRA employees in possession of Confidential Information shall not be entitled to use or transfer it to other persons (including those who are not ACRA employees) in order to make transactions with securities or for other purposes unrelated to their job duties.

3.2.6. ACRA employees, their spouses and children shall not be allowed to invest or make transactions with securities, if the ACRA employee possesses Confidential Information about the securities or their issuers. This prohibition applies irrespective of whether the issuers have Credit Ratings assigned by ACRA or ACRA performs Rating Actions in respect of such securities or their issuers.

3.2.7. In order to implement the mentioned requirements, ACRA shall develop, approve, update and use internal documents on protection of Confidential Information. ACRA employees shall be regularly made familiar with these documents, with signing the relevant familiarization and compliance forms.

3.2.8. ACRA shall reserve the right to use confidential statistical information of a Rated Entity, without specifying the name of the Rated Entity, in publications containing consolidated statistics, provided that it is impossible for third parties to single out confidential statistical information from such consolidated statistics.

3.2.9. In order to comply with the requirements of Federal Law № 224-FZ dated 27 July 2010, “On Countering Illegal Use of Insider Information and Market Manipulation and on Amendments to Certain Legislative Acts of the Russian Federation”, ACRA shall develop and update the List of Insider Information of ACRA.

3.2.10. ACRA internal documents shall contain the procedure for treatment of insider information, including the rules of its use and of its protection from illegal use.

Risk management and heightened awareness of ACRA employees

ACRA shall ensure risk management, including but not limited to legal, reputational, operational and strategic risks.

ACRA shall identify, assess, monitor them and prepare regular reporting to be submitted to ACRA’s Board of Directors and CEO to ensure that it helps adequately assess ACRA’s existing policies, regulations and controls developed in accordance with the requirements of this Code and the IOSCO Code.

ACRA shall assign the risk management function to the Compliance and Internal Control Service.

ACRA shall formalize, update and approve its internal documents, which require that ACRA employees undergo regular training to obtain the awareness of the following documents:

  • basic laws and regulations governing ACRA activities;
  • this Code;
  • policies and regulations governing the following issues: management of Conflicts of Interests, transactions with securities by its employees and their family members and dealing with Confidential Information;
  • Methodology (for employees involved in Rating Activities or Methodology development).

All policies and regulations developed by ACRA should include measures to familiarize employees with such documents and to undergo relevant training if necessary.

Ensuring compliance with the Code, interaction with market participants and Code Disclosure

ACRA’s Board of Directors shall be responsible for formalization, approval and timely update of this Code, which ensures the implementation of principles underlying the IOSCO Code and the IOSCO Principles.

Disclosure of information, performed by ACRA in accordance with the requirements herein, should be complete, fair, accurate, timely and clear to investors and other users of Credit Ratings. ACRA shall disclose this Code and make every required effort to implement its principles.

Compliance and Internal Control Service shall monitor compliance with this Code and shall also be responsible for interaction with market participants on all matters, problems or complaints related to ACRA activities. Compliance and Internal Control Service shall facilitate the information awareness of ACRA’s management and employees concerning the application of this Code and ACRA’s internal policies.

Failure to comply with this Code and ACRA internal documents may cause a disciplinary action, including termination of employment.

ACRA shall publish this Code, the description of applied Methodologies, statistical data on the effectiveness of Credit Ratings assigned by ACRA, as well as other disclosed documents and reports on its official website on the internet www.acra-ratings.com

Disclaimer

By disclosing this Code, ACRA shall not be responsible and shall assume no obligations to any third party in connection with this Code or principles or ACRA internal documents related to it.

The code is not a contract or part of any contract with a third party, and no third party shall be entitled to demand that ACRA directly or indirectly perform according of its provisions. ACRA has a right to revise this Code at its discretion in order to incorporate in it any modifications made to rating assignment procedures, changes to the structure and composition of its governance bodies, as well as new market conditions and amendments to the legislation.

This Code is valid from the date of its publication on the official website of ACRA www.acra-ratings.com and until publication of its updated version, or an equivalent document in replacement of it.

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