Regulatory Decision 2023-10 on the Code of Conduct for the Corporate Rating Activity

PUBLIC DOCUMENT BANK OF FRANCE GOVERNOR'S DECISION DR No. 2023-10 of July 28, 2023 Code of Conduct for the Rating Activity Section: 0.2.2., 6.1.

THE GOVERNOR OF THE BANK OF FRANCE Having regard to the Code of Ethics and Deontology attached to Order A-2023-01 of February 3, 2023, DECIDES

Article 1: Agents of the Bank of France who participate in the corporate rating process are subject to the provisions of the "Code of Conduct for the Rating Activity" attached to this decision and published on the Bank of France website.

Article 2: Heads of units in the network participating in rating activities ensure that this code is implemented by the relevant agents in their unit.

Article 3: This decision repeals Decision D-2019-22 of October 30, 2019, and enters into force on the date of its publication in the official publication register of the Bank of France.

The Governor, François VILLEROY de GALHAU

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The Code of Conduct for the Rating Activity – July 2023 | 1 The Code of Conduct for the Rating Activity of Companies at the Bank of France

At the Bank of France, the term "corporate rating" refers to the process of analyzing the situation of companies, which leads to the assignment of a "credit rating," reflecting a company's ability to meet its financial commitments over a horizon of one to three years.

This Code of Conduct guarantees the quality, integrity, and transparency of the rating process.

It includes, after a presentation of the Bank of France rating, the legal, statutory, and regulatory provisions to which analysts are subject, particularly regarding the prevention of conflicts of interest, the rules ensuring the integrity and quality of the rating process, and information on who has access to ratings.

Annex to Regulatory Decision No. 2023-10

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The Code of Conduct for the Rating Activity – July 2023 | 2 Table of Contents

1- PREAMBLE - THE BANK OF FRANCE CREDIT RATING: DEFINITION, OBJECTIVE, AND METHODS 3 1.1. WHAT IS THE BANK OF FRANCE CREDIT RATING? 3 1.2. WHY DOES THE BANK OF FRANCE ASSIGN RATINGS TO COMPANIES? 3 1.3 – WHO TAKES THE INITIATIVE TO TRIGGER THE RATING PROCESS? 4 1.4 – WHAT DATA IS USED? 4 1.5 – WHO CAN ACCESS THE RATING? 4 1.6 – WHO ARE THE ANALYSTS? 6 1.7 – HOW IS THE RATING ASSIGNED? 6

2- ETHICAL RULES APPLICABLE TO AGENTS INVOLVED IN THE CORPORATE RATING ACTIVITY 7 2.1 – RULES APPLICABLE TO ALL AGENTS OF THE BANK OF FRANCE 7 2.2 – FIBEN MANAGEMENT STANDARDS CONTRIBUTING TO GUARANTEE THE INTEGRITY OF ANALYSTS 7 2.3 – PRINCIPLES AND DILIGENCE APPLICABLE TO ANALYSTS REGARDING INDEPENDENCE AND PREVENTION OF CONFLICTS OF INTEREST 8 2.4 – MEASURES TAKEN FOR THE MANAGEMENT OF CONFLICTS OF INTEREST 9

3- INTEGRITY AND QUALITY OF THE RATING PROCESS 9 3.1 – FORMALIZATION OF THE DECISION-MAKING PROCESS 9 3.2 – MOTIVATION AND TRACEABILITY OF DECISIONS 10 3.3 – QUALITY CONTROL 10

4- COMMUNICATION OF THE RATING AND TRANSPARENCY 12 4.1 – ACCESS TO A COMPANY'S RATING BY AGENTS OF THE BANK OF FRANCE AND THE SECRETARIAT GENERAL OF THE PRUDENTIAL CONTROL AND RESOLUTION AUTHORITY 12 4.2. ACCESS TO A COMPANY'S RATING BY MEMBERS OF FIBEN 12 4.2.1. Credit Institutions 12 4.2.2. Other FIBEN Members 13 4.3 – ACCESS TO THE RATING BY THE COMPANY HEAD 14 4.4 – ACCESS TO FIBEN AND ITS INFORMATION BY IT SERVICES PERSONNEL 15 4.5 – PUBLICATION ON METHODS AND EVOLUTION OF THE ACTIVITY 15

Glossary 16

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The Code of Conduct for the Rating Activity – July 2023 | 3 1- Preamble - The Bank of France Credit Rating: Definition, Objective, and Methods

1.1. What is the Bank of France Credit Rating? The Bank of France rating is a tool for measuring and monitoring the credit risk of non-financial companies. It also applies to other entities (public law legal persons, mutualist and professional organizations, associations, and foundations...) as long as they carry out an economic activity significantly. It reflects the Bank of France's assessment of an entity's ability to honor its financial commitments. This evaluation is made over a horizon of one to three years.

The rating and the information on which it is based (financial statements, financing obtained by companies, payment incidents, descriptive and qualitative data...) are managed in a specific information system, FIBEN (Banking File of Companies). FIBEN, established in accordance with legal and regulatory provisions, notably the modified law of January 6, 1978, relating to computing, files, and freedoms, is administered by the Companies Department, attached to the General Directorate of Services to the Economy and the Network of the Bank of France.

The corporate rating, when based on the study of accounting documents, is assigned after an analysis falling within the framework of a methodology whose validity is regularly checked. The Bank of France publishes performance indicators, notably in the form of default rates 1 for each risk class 2. Furthermore, the methodological principles applied by analysts are available in brochures and on the Bank of France website, https://entreprises.banque-france.fr/.

1 Words in "bold" are defined in the glossary at the end of this document. 2 Regulation (EU) No 575:2013 of the European Parliament and of the Council of June 26, 2013, on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012

1.2. Why does the Bank of France assign ratings to companies? Rating is recognized by the Eurosystem as an "Internal Credit Assessment System" (ICAS acronym). It allows for the assessment, for monetary policy purposes, of the quality of claims held by credit institutions on non-financial companies. Only claims on companies receiving the best ratings can be mobilized by credit institutions with the Eurosystem as collateral for refinancing operations.

By virtue of its status as an External Credit Assessment Institution (ECAI), the Bank of France rating system can be used by credit institutions for the calculation of their regulatory capital requirements.

Made available to credit institutions, the ratings are exploited as a decision-making aid tool, for monitoring, and for measuring the quality of their corporate credit portfolios. The use of ratings facilitates the supervision of the asset solidity of credit institutions by the Prudential Control and Resolution Authority (ACPR).

The rating allows the company to have the external assessment formulated by an independent institution, the Bank of France, on the state of its financial situation, and thus to position itself on a credit quality scale.

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The Code of Conduct for the Rating Activity – July 2023 | 4 1.3 – Who takes the initiative to trigger the rating process? The triggering of the rating process is generally solely the initiative of the Bank of France, which receives no remuneration from companies in exchange for the rating it assigns to them and informs them of.

The Bank of France analyst seeks cooperation with the company to: • collect certain of its accounting documents – consolidated accounts in particular – not covered by the automated process of transmitting tax returns set up with the DGFiP3, • where applicable, obtain additional clarifications that will help him formulate his assessment of the company's financial situation and prospects.

In exchange for this cooperative approach, which strengthens the reliability of the assessment of the company's financial situation, the Bank of France commits that the information provided is intended solely for the use of credit risk analysis and that the rating is disseminated in a limited manner (cf. points 1.5 and 4).

1.4 – What data is used? Rating takes into account in particular: • for companies whose level of activity exceeds a threshold of annual turnover excluding tax determined by the Bank of France, the analysis of social and possibly consolidated accounting documents, when available, • the examination of financial commitments and possible defaults and payment incidents on commercial paper (IPE), • the company's environment: sector of activity, economic and financial links with other entities, where applicable judicial events or other events concerning the company and its management, communicated by the clerk's offices of commercial courts or legal publications.

These information are cross-checked and controlled to assign a rating that takes into account the particular context of each company. The rating is updated whenever new significant information is integrated into FIBEN, particularly upon receipt of annual accounting documents for companies whose annual turnover excluding tax exceeds a threshold determined by the Bank of France. The same applies when information is deemed outdated: each non-permanent data is indeed attached to a validity period after which the data must be verified or no longer used.

In FIBEN, each rating is thus accompanied by its assignment date, its last update date, and a codification summarizing the determining reason(s) justifying the position on the rating scale.

1.5 – Who can access the rating? In addition to being informed of its assignment, the company head has, upon request, access to the rating assigned to his company as well as to the information allowing it to be explained.

3 2021_communique_dgfip_bdf_bilans_0.pdf (banque-france.fr)

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The Code of Conduct for the Rating Activity – July 2023 | 5 Subject to maintaining the confidentiality of the information, the following may also access the rating: • analysts and unit heads in the Bank of France network4, the Companies Department at headquarters which administers FIBEN, the General Inspection of the Bank of France, responsible for auditing the aforementioned services, • Bank of France services for the exercise of its fundamental missions related to the monitoring of company financing, notably the implementation of monetary policy (selection of claims eligible for monetary refinancing), • services of the Prudential Control and Resolution Authority for the exercise of prudential supervision, • entities listed in Article L. 144-1 of the Monetary and Financial Code, namely:

• other central banks and other institutions entrusted with a mission similar to that entrusted in France to the Bank of France,
• the following establishments and organizations that have subscribed to an affiliation agreement giving them access to all or part of the online services of FIBEN:

• credit institutions and financial establishments, notably financing companies,
• insurance companies, supplementary professional pension funds, mutuals, mutuals or unions of supplementary professional pension funds, supplementary professional pension institutions, and provident institutions that invest in loans and securities assimilated under the conditions provided, respectively, by the Insurance Code, the Mutual Code, and the Social Security Code,
• portfolio management companies meeting the conditions mentioned in Article 1 of Decree No. 2015-1854 of December 30, 2015, as amended,
• crowdfunding intermediaries when they exercise intermediation within the meaning of Article L. 548-1 of the Monetary and Financial Code for loan operations for consideration or gratuitously,
• crowdfunding service providers, investment services, and crowdfunding investment advisors when they offer minibonds mentioned in Article L 223-6 of the Monetary and Financial Code5,
• the organization mentioned in the first paragraph of Article L. 432-2 of the Insurance Code and insurance companies authorized, under the conditions provided by the Insurance Code, to carry out credit insurance or guarantee operations in France, provided that their interventions are addressed to non-financial companies,
• regional councils when they award public aid to companies, the following public administrations intervening in the detection, prevention, and treatment of company difficulties:
• the tax administration for its economic mission,
• State administrations with an economic or financial vocation.

4 Or in the IEDOM (Institute of Issue of Overseas Departments) network, for overseas departments and overseas collectivities of Saint Pierre and Miquelon, Saint-Barthélemy, and Saint-Martin. www.iedom.fr 5 Investment service providers and crowdfunding investment advisors may continue to provide their services, including offers relating to minibonds, until 10/11/2023 (date indicated by Delegated Regulation (EU) 2022/1988 of the Commission of 12/07/2022 – end of the transitional period allowing crowdfunding platforms and competent authorities to adapt to the new framework)

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The Code of Conduct for the Rating Activity – July 2023 | 6 Other persons may access the company's rating on a one-off basis on the basis of special legislative texts lifting professional secrecy.

No unit of the Bank of France likely to make investments (IT, real estate...) can access a company's rating in the context of the selection of service providers.

1.6 – Who are the analysts? Analysts are agents of the Bank of France who exercise their activity in network units located on French territory. They bring to the credit risk assessment their financial expertise and a thorough knowledge of the sectors and economic territories on which or from which the company develops its activity. Each analyzed company falls under a competent unit. Exchanges with the company head may take place whenever it appears necessary for the analysis of the company's situation or at its request.

Each analyst benefits from initial training that allows him, in particular, to exercise personal judgment through the implementation of a methodology and standardized procedures. His knowledge and skills are regularly updated as part of high-level continuous training.

The coordination organized between the different units, within each region, and at the national level between regions, facilitates the transmission of best practices, the exchange of experiences, and, if necessary, the specialization of certain functions.

1.7 – How is the rating assigned? The Bank of France rating is a rating through the economic cycle with a horizon of one to three years that tends to limit the incidence of short-term factors (drop in turnover, decrease in profitability...).

It is assigned "by expert opinion," that is to say, after file instruction by an analyst in application of a set of methodological rules grouped in a rating reference framework, regularly updated. Its assignment mode excludes the use of fully automated rating processes and/or based exclusively on financial data.

The analyst proceeds to the evaluation, on an individual and in-depth basis, of the financial situation of rated companies, in accordance with the financial expertise rules of the rating reference framework. These rules are moreover modeled in a rating assistance tool, which, by guaranteeing respect and exhaustive exploitation of available data, secures the analyst's decision-making. The rating of a company can also be influenced by the consideration of so-called "qualitative" elements, in accordance with the methodological rules of the rating reference framework, such as, in particular, the evolution of the market on which it operates, its positioning on this market, relations with its clients and suppliers, the solidity of the shareholding, the strategy of the management team, medium-term prospects and projects, the financial flexibility of the company, the transparency of communication, its policy on social and environmental responsibility...

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The Code of Conduct for the Rating Activity – July 2023 | 7 2- Ethical Rules Imposed on Agents Intervening in the Framework of the Corporate Rating Activity

Analysts are subject to the legal, statutory, and regulatory provisions that apply to all agents of the Bank of France. The management standards of the rating activity also provide guarantees regarding the professional integrity of analysts.

Any Bank of France analyst commits to assigning ratings in an impartial, honest, and independent manner, disregarding any influence or personal interest, and to mobilizing all expertise made available to him to guarantee the company the quality of the assessment performed.

The measures mentioned below describe the provisions that analysts must respect in case of potential conflict of interest; the examples given correspond to the main cases that may arise but are not exclusive of other situations.

2.1 – Rules Applicable to All Agents of the Bank of France As agents of the Bank of France, analysts must refrain from disclosing information they hold in confidence and are bound by professional secrecy in application of Articles L. 142-9 and L. 164-2 of the Monetary and Financial Code.

Article L. 142-9 provides in particular that "Agents of the Bank of France are bound by professional secrecy. (...)".

Article L. 164-2 provides that violation of professional secrecy is a criminal offense, punishable by the penalties provided for in Article 226-13 of the Penal Code, subject to the derogations provided for in Article 226-14.

Analysts are subject to the Bank of France Code of Ethics and Deontology adopted by the General Council of the Bank of France by Order No. A 2023-01 of February 3, 2023, published in the official register of the Bank of France.

2.2 – FIBEN Management Standards Contributing to Guarantee the Integrity of Analysts Analysts pursue a single and explicit objective: to determine the rating that best reflects the credit quality of the company, that is to say, its ability to honor its financial commitments, and this over a horizon of one to three years.

The Bank of France rating process is based on two management principles avoiding submitting analysts to conflicts of interest related to commercial relations or financial interests, when such relations exist between the Bank of France and rated entities: • companies do not pay to be rated; the rating process is financed by its users: consultations are billed to FIBEN clients according to a published tariff while the costs generated by the use of the rating in the framework of the Bank of France missions, as defined in particular in Articles L. 141-1 and following of the Monetary and Financial Code, are covered by its budget;

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The Code of Conduct for the Rating Activity – July 2023 | 8 • the remuneration of an analyst is not directly subordinate to the volume of rated companies and is not modifiable according to the orientations of his rating decisions.

2.3 – Principles and Diligence Applicable to Analysts Regarding Independence and Prevention of Conflicts of Interest The activity of credit risk assessment of companies is exercised within the framework of the legal status of the Bank of France which ensures its decision-making independence.

Article L. 141-1 of the Monetary and Financial Code specifies in particular: "In the exercise of the missions it carries out by reason of its participation in the European System of Central Banks, the Bank of France, through its Governor or Deputy Governors, cannot solicit or accept instructions from the Government or any person."

The analyst must, in the same spirit, carry out his work without any consideration for recommendations, invitations, or advice that could be addressed to him by persons foreign to the rating process of the company he examines. If such an attempt occurs, the analyst reports it in writing to his hierarchical manager, specifying the context (date and place) and the identity of the party who sought, in his view, implicitly or explicitly, to influence the rating decision. In the most significant situations, the director of the concerned network unit informs in writing the General Director of Services to the Economy and the Network.

The analyst must also ensure not to contact and not to respond to solicitations from other units of the Bank of France in the framework of the rating exercise, as long as these entities are not concerned by the rating of the company.

Article L. 142-9 of the Monetary and Financial Code prohibits agents of the Bank of France from "taking or receiving any participation or any interest or remuneration whatsoever by work or advice in a public or private, industrial, commercial, or financial company, except derogation granted by the Governor." The analyst cannot thus be placed, except in very rare exceptions, in a situation where he would participate in the rating process of a company in which he has interests. If, however, his personal interests or those of his close ones are concerned (cf. 2.1 above), he must take the initiative to inform in writing the head of the unit in which he works, as well as, if he deems it necessary, the ethics officer. His hierarchical manager must then relieve him of the file processing, under the conditions provided for in Article 5.1 of the Code of Ethics and Deontology. In case of particular difficulty, he refers to the ethics officer.

The rating decision must not take into account potential professional or financial relations of a network unit or the headquarters of the Bank of France with a company or one of its management. The rating decision must notably be independent of any potential credit mediation procedure 6 or performance of services such as, in particular, the GEODE diagnostic service7. Also, neither the GEODE analyst nor the account manager, in charge of selling the service, when a rating order is...

6 Credit mediation procedure 7 GEODE diagnostic service