R-CNMV-2022-03-MV — Regulation for Risk Rating Agencies

Siikv Superintendencia del Mercado de Valores dc la Repiiblica Dominicana CERTIFICATION

The undersigned, Mr. Ervin Novas Bello, manager of the Central Bank of the Dominican Republic (hereinafter "Central Bank"), representing the Governor of the Central Bank, ex officio member and President of the National Securities Market Council (hereinafter "Council"); and Mrs. Fabel Maria Sandoval Ventura, Secretary of the Council,

CERTIFY that the text below constitutes a faithful copy transcribed in its entirety according to the original of the Third Resolution, R-CNMV-2022-03-MV, adopted by the Council in the meeting held on Thursday, the twenty-fourth (24) day of March of the year two thousand twenty-two (2022), which is kept in the archives of this Secretariat, namely:

"THIRD RESOLUTION OF THE NATIONAL SECURITIES MARKET COUNCIL DATED TWENTY-FOURTH (24) OF MARCH OF TWO THOUSAND TWENTY-TWO (2022). R-CNMV-2022-03-MV

Reference: Approval of the Regulation for Risk Rating Agencies.

Result:

That on March seventeen (17) of the year two thousand twenty-two (2022), the Superintendent of the Securities Market (hereinafter "Superintendent") submitted to the consideration and final approval of the National Securities Market Council (hereinafter "Council"), the draft Regulation for Risk Rating Agencies (hereinafter "draft Regulation").

That pursuant to the powers granted by Law No. 249-17, of the Securities Market of the Dominican Republic, which repeals and substitutes Law No. 19-00, of May eight (8) of the year two thousand (2000), promulgated on December nineteen (19) of two thousand seventeen (2017), and its modification (hereinafter "Law No. 249-17"), and the Internal Regulation of the Council, adopted by this collegiate body through the First Resolution, R-CNMV-2018-06-MV, issued on November twenty-nine (29) of the year two thousand eighteen (2018) (hereinafter "Internal Regulation of the Council"); the Council, meeting validly with prior authorization, has deemed it appropriate to state the following:

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SNv Superintendencia del Mercado de Valores dc la Repiiblica Dominicana

Considering:

1. That, in accordance with Article 10 of Law No. 249-17, the Securities Market Superintendence (hereinafter "Superintendence") is integrated by a collegiate body, the Council, and an executive official, the Superintendent.

2. That the aforementioned law, in the main part of its Article 13, establishes that the Council is the superior body of the Superintendence, with essentially normative, supervisory, and control functions.

3. That, in addition to the foregoing, numeral 5 confers upon the Council the attribute to "[d]ictate, upon proposal of the Superintendent, the regulations for the application of this law".

4. That, likewise, Article 25 of Law No. 249-17 reiterates that "[t]he Council is the competent body to establish the regulations relative to the activities of the securities market indicated in this law."

5. That paragraph I of said article adds that "[i]n the exercise of regulatory power, the Council and the Superintendence will observe the principles of legality and the rules of public consultation, participation, and transparency contained in the Constitution of the Republic and the laws in force".

6. That it is worth highlighting that Article 2 of the aforementioned Law No. 249-17 reveals that the provisions contained in said statute apply to all natural and legal persons who carry out activities, operations, and transactions in the securities market of the Dominican Republic, with public offer values that are offered or negotiated within the national territory.

7. That, parallel to this, in the paragraph of the aforementioned article it is established that "[n]atural and legal persons who carry out any of the activities or services provided for in this law, will be subject to the regulation, supervision, and inspection of the Securities Market Superintendence, = in what relates to the exercise of those mentioned activities or services." [underlining ours]

8. That, for its part, Article 36 of Law No. 249-17 expresses that "[t]he Superintendence will have a Registry available to the public, which may be electronic, and in it will be registered the natural and legal persons who participate in the securities market, as well as the information

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SNv Superintendencia del Mercado de Valores dc la Repiiblica Dominicana

public regarding the values registered in the Registry and of the participants of the securities market regulated by this law."

9. That, according to what Article 3, numeral 33, of the aforementioned Law No. 249- 17 states, participants of the securities market are natural or legal persons registered in the Securities Market Registry and regulated by the Superintendence.

10. That, in conformity with Article 3, numeral 3, of the aforementioned Law No. 249-17, the rating of risk is defined as "the technical and specialized opinion issued by risk rating agencies."

11. That, likewise, Law No. 249-17 establishes in its Article 182 that risk rating agencies have as their object to carry out risk ratings of companies and values, and must obtain the authorization of registration in the Registry from the Superintendence.

12. That on March seventeen (17) of the year two thousand twenty-two (2022) the Superintendent submitted to this collegiate body a communication requesting final approval of the draft Regulation.

13. That the communication of the Superintendent was accompanied by a matrix that collects the observations resulting from the consultative process, a report on the consultative process, a list containing the relevant data of the file, as well as a document titled "Statement of Reasons", prepared by the Regulation Directorate of the Superintendence.

14. That regarding this particular matter, through the Second Resolution, R-CNMV-2021-23-MV, issued by the Council on September twenty-one (21) of the year two thousand twenty-one (2021), the Superintendent was authorized to effect the publication of the draft Regulation in one or more newspapers of wide national circulation for a period of twenty-five (25) business days, for the purpose of public consultation by interested sectors; in compliance with the provisions contained in the General Law of Free Access to Public Information, No. 200-04, of date July twenty-eight (28) of the year two thousand four (2004).

15. That, in accordance with the document titled "Statement of Reasons", the aforementioned consultative process took place from November eleven (11) to November fifteen (15) of the year two thousand twenty-one (2021), inclusive. " _ "fs\r . Page 3 of 42 Av. César Nicolás Penson No. 66, Gascue, Santo Domingo, Dominican Republic Telephone: 809.221.4433 · http://www.simv.gob.do | info@simvgob.do | RNC: 4-01-51572-5

Siikv Superintendencia del Mercado de Valores dc la Repiiblica Dominicana

16. That as a result of said public consultation, observations were received from the following entities: Cibao Savings and Loans Association, Stock Exchange Association (APB), Feller Rate Dominicana, Fitch Ratings, Pacific Credit Rating, and SCRiesgo.

17. That said observations were duly analyzed and weighed by a technical team of the Superintendence; highlighting among those accepted detailed below, attending to the report titled "List containing the relevant data of the file", prepared by the Regulation Directorate, which accompanies the letter sent by the Superintendent:

66 · The definition of Rating of Companies or values was modified. · An article regarding the external review of green, social, or sustainable issuances was added. · Provisions regarding remote sessions of the rating committee were incorporated. · The feasibility of the digital signature of the rating committee minutes was contemplated. · The percentage regarding the possibility of existence of conflicts of interest due to concentration of income by client or financial group was increased. · The rotation of risk rating agencies was eliminated. · The term of three (3) to five (5) regarding the rotation of analysts assigned to a rating process was increased. · The submission and prior deposit of rating methodologies and their modifications by the Risk Rating Agency in the Registry of the Superintendence was limited. · Provisions regarding the objection of the rating opinion by the Superintendence were eliminated, limiting it to a supervision of compliance with the methodology. · Provisions regarding the minimum term of service contracting between the rating agency and the client were eliminated."

18. That, subsequently, as part of the administrative procedure, prior to the final approval of the draft Regulation and in attention to the principles of transparency and participation, a virtual working table was held with the interested sectors, on dates three (3) and fifteen (15) of March of the year two thousand twenty-two (2022). viv _ ,_ fs'C Page 4 of 42 Av. César Nicolás Penson No. 66, Gascue, Santo Domingo, Dominican Republic Telephone: 809.221.4433 · http://www.simv.gob.do | info@simv:gob.do | RNC: 4-01-51572-5

Siikv Superintendencia del Mercado de Valores dc la Repiiblica Dominicana

19. That, for its part, in the document titled "Statement of Reasons", it is explained that "[i]n the development of the Regulation, best practices in the matter of regulation of the Securities Market have been considered, especially the precepts of the International Organization of Securities Commissions (IOSCO), in adherence to the legal framework of the Dominican Republic. Likewise, the draft Regulation seeks to reinforce the business model that risk rating agencies registered in the Registry have developed in the last years and that expressly recognizes Law No. 249-17."

20. That, following up on the above, the document indicates the importance of risk rating agencies in that:

"[r]isk rating agencies issue their opinions based on the information supplied by their clients, which must be precise, reliable, and transparent, so that the opinion fulfills the objective of revealing the risks of a company or sector and thus its capacity to fulfill obligations with third parties. One of the main responsibilities of risk rating agencies is to ensure that the information it receives from clients is supported and documented, although it should be clarified that it is not its function to carry out auditing or supervision tasks. For this reason, for risk rating agencies the reports they issue are fundamental, these control bodies, which includes improvement opportunities, as through these it is possible to establish potential risks for the benefit of participants of the securities market."

21. That, among the technical motivations set forth in the document, it is highlighted that in the draft Regulation "[s]ome requirements are also incorporated based on what was requested of external audit companies as good practices. · Regarding the role of risk rating agencies, the Securities Exchange

• Commission (SEC) points out that these play a critical role of "watchdog" in the debt market, which is functionally similar to that of securities analysts, who evaluate the quality of instruments, and of auditors, who review the "_rsr Page 5 of 42 \y|h!l " Av. César Nicolás Penson No. 66, Gascue, Santo Domingo, Dominican Republic Telephone: 809.221.4433 · http://l lwww.sirrn:gob.do | info@simv:gob.do | RNC: 4-01-51572-5

Siidv Superintendencia del Mercado de Valores dc la RepUblica Dominicana

financial statements of companies, so that such role justifies a similar level of public supervision and responsibility. · In a partially regulated market, to the extent that a debt issuer believes that obtaining a rating improves its financing conditions, it will be willing to pay to obtain a rating, in turn, investors believe that the rating has useful information about the creditworthiness of the issuer. By therefore, the only value of the rating for an issuer lies in the credibility of the signal it sends to potential investors about its credit quality. · In this sense, having a reputation for objectivity and impartiality would be a valuable asset for a risk rating agency. This reputation could be earned with a long history of successful ratings in various markets. The reputation of a risk rating agency will also improve if conflicts of interest are avoided, created, for example, when the risk rating agency is linked or is influenced by the institutions that are rated, or their groups."

22. That, in addition to the above, this document indicates that the object of the present project is "to establish the principles, criteria, and requirements that will govern the authorization and registration in the Securities Market Registry and the operation of Risk Rating Agencies."

23. That, in that order, the document establishes that "best practices in the matter of regulation of the Securities Market have been considered, especially the precepts of the International Organization of Securities Commissions (IOSCO), in adherence to the legal framework of the Dominican Republic. Likewise, the draft Regulation seeks to reinforce the business model that risk rating agencies registered in the Registry have developed in the last years and that expressly recognizes Law No. 249-17."

24. That, in attention to everything previously stated, observing the favorable opinion of the Superintendent, along with the reports and documents submitted by the technical area of the Superintendence, this collegiate body is of the opinion that the draft Regulation may be accepted favorably. i9t _ rsf" Page 6 of 42 Av. César Nicolás Penson No. 66, Gascue, Santo Domingo, Dominican Republic Telephone: 809.221.4433 · http://www.simv.gob.do | info@simv.gob.do | RNC: 4-01-51572-5

SK,rv Superintendencia del Mercado de Valores dc la Repiiblica Dominicana

Seen:

a. The Constitution of the Dominican Republic, voted and proclaimed by the National Assembly on June thirteen (13) of the year two thousand fifteen (2015), published on July ten (10) of two thousand fifteen (2015).

b. Law No. 249-17, of the Securities Market of the Dominican Republic, which repeals and substitutes Law No. 19-00, of May eight (8) of the year two thousand (2000), promulgated on December nineteen (19) of two thousand seventeen (2017), and its modification.

c. Law No. 107-13, on the Rights of Persons in their Relations with the Administration and of Administrative Procedure, of date August six (6) of the year two thousand thirteen (2013).

d. Law No. 479-08, of Commercial Companies and Individual Limited Liability Enterprises, of November eleven (11) of the year two thousand eight (2008), and its modifications.

e. Law No. 200-04, General of Free Access to Public Information, of date twenty-eight (28) of July of the year two thousand four (2004).

f. The Internal Regulation of the National Securities Market Council, issued through the First Resolution, R-CNMV-2018-06-MV, of date November twenty-nine (29) of the year two thousand eighteen (2018).

g. The Regulation of the General Law of Free Access to Public Information, approved through Decree No. 130-05, of date February twenty-five (25) of the year two thousand five (2005).

h. Communication of date March seventeen (17) of the year two thousand twenty-two (2022), signed by the Superintendent of the Securities Market, and annexes cited.

i. The other documents that make up the file.

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SNv Superintendencia del Mercado de Valores de la Repiiblica Dominicana

After having studied and deliberated on the matter, the Council, in the exercise of the powers conferred upon it by Law No. 249-17, by unanimous vote of its members, attending to the reasons exposed, RESOLVES:

FIRST: APPROVE the final version of the draft Regulation for Risk Rating Agencies; whose text is transcribed below, according to the document submitted by the Superintendence:

"REGULATION FOR RISK RATING AGENCIES

TITLE I GENERAL PROVISIONS

CHAPTER I Object, Scope, and Definitions

Article 1. Object. To establish the principles, criteria, and requirements that will govern the authorization and registration in the Securities Market Registry (hereinafter, the "Registry") and the operation of Risk Rating Agencies.

Article 2. Scope. The regulation established in this Regulation is subject to Risk Rating Agencies that request registration in the Registry to offer risk rating services to companies or values as established in Law No. 249-17 of the Securities Market of the Dominican Republic of December nineteen (19) of the year two thousand seventeen (2017), which repeals and substitutes Law No. 19-00 of May eight (8) of the year two thousand (2000) (hereinafter, the "Law"), its complementary regulations, and this Regulation. Paragraph. Likewise, what is provided in this Regulation applies to mandatory risk ratings and those companies or values that have decided to rate themselves voluntarily, while they decide to remain rated. fsjC ,dgina8d,42 i8/ Av. César Nicolás Penson No. 66, Gascue, Santo Domingo, Dominican Republic Telephone: 809.221.4433 · http://www.simv.gob.do | info@simv.gob.do | RNC: 4-01-51572-5

SNv Superintendencia del Mercado de Valores de la Repiiblica Dominicana

Article 3. Definitions. In addition to the definitions established in Article 3 of the Law, for the purposes of this Regulation, the following terms will have the following definitions:

1. Rating Committee: Body of the Risk Rating Agency responsible for issuing the rating.

2. Information Security Incident: Event associated with a possible failure in the security policy, a failure in controls, or a previously unknown situation relevant to security, which has a significant probability of compromising the business operations and threatening the security of Information.

3. Information: Data that can be processed, distributed, stored, and represented in any electronic, digital, optical, magnetic, or other similar media.

4. Risk Rating Agencies: These are legal persons dedicated to carrying out risk ratings of companies and values.

CHAPTER II Risk Rating

Article 4. General Principles. Risk Rating Agencies and their members, in the development of the risk rating activity, as well as their other activities, must observe the following general principles:

1. Quality and integrity of the rating process: Risk Rating Agencies must strive to issue opinions having as a basis the information sufficient about the companies or values to be rated.

2. Independence, objectivity, and conflicts of interest: The assignment of risk ratings by Risk Rating Agencies must be independent and free of political or economic pressures and of conflicts of interest generated by the structure of capital, commercial, financial activities, and interests of members. Risk Rating Agencies must avoid carrying out activities or acts, celebrating agreements, or entering into relationships that could compromise or appear to compromise the independence and objectivity of the risk rating process. till f'sC Page 9 of 42 Av. César Nicolás Penson No. 66, Gascue, Santo Domingo, Dominican Republic Telephone: 809.221.4433 · http://www.simr:gob.do | info@simv.gob.do | RNC: 4-01-51572-5

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3. Transparency and timely disclosure of the risk rating: Risk Rating Agencies must disclose in a timely and non-selective manner risk ratings intended to be public. Likewise, they must disclose Information sufficient to allow understanding and differentiating the rating methodologies and the meaning of the ratings assigned.

4. Confidentiality and reserve of Information: Risk Rating Agencies must maintain the confidentiality of all non-public Information communicated to them by issuers or their representatives, under the terms of a confidentiality agreement or another document that establishes the confidentiality of Information, without prejudice to the due observance of the general principles of transparency.

Article 5. Rating of companies or values. Rating is defined as the professional, specialized, and independent opinion regarding the relative capacity of an entity to fulfill its financial, contractual, or legal commitments, on the impact of the risks that the rated entity is assuming, or on the ability to manage investments or third-party portfolios, as the case may be. Such opinion is carried out in accordance with the criteria and methodologies previously presented to the Securities Market Superintendence (hereinafter, the "Superintendence"). Paragraph. The assigned risk rating is the sole responsibility of the Risk Rating Agency.

Article 6. Mandatory risk rating. Risk rating will be mandatory for issuers and values whose current regulation so requires. Paragraph. The risk rating of the issuer or its values, as applicable, must be carried out at the expense of the issuer or as established in the applicable regulations on the matter.

Article 7. Permanent evaluation. The risk rating must be updated at all times. Risk Rating Agencies must issue a risk rating report with semi-annual periodicity. ·' Paragraph I. In virtue of the above, one of the semi-annual reviews must be based on the most recent available audited financial information. The review that does not respond to the Page 10 of 42 " Rsjr " Av. César Nicolás Penson No. 66, Gascue, Santo Domingo, Dominican Republic Telephone: 809.221.4433 · http://www.simv.gob.do | info@simv.gob.do | RNC: 4-01-51572-5

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