WEST AFRICAN MONETARY UNION

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REGIONAL COUNCIL FOR PUBLIC SAVINGS AND FINANCIAL MARKETS

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INSTRUCTION NO. 37/2009

ON THE CONDITIONS FOR OPERATING CREDIT RATING AGENCIES ON THE UMOA REGIONAL FINANCIAL MARKET

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The Regional Council for Public Savings and Financial Markets,

Having regard to the Convention establishing the Regional Council for Public Savings and Financial Markets (hereinafter "the Council");

Having regard to the Annex to the Convention on the Composition, Organization, Operation and Powers of the Council;

Having regard to the General Regulation on the Organization, Operation and Supervision of the UMOA regional financial market;

Having regard to the resolutions adopted by the Council in its ordinary session on 27 October 2009,

ORDERS

TITLE I

DEFINITIONS, OBJECT AND SCOPE OF APPLICATION

Article 1: Definitions

1. For the purposes of this Instruction, the following terms shall mean:
   a) "Rating Agency": a commercial company whose main and regular activity consists in issuing ratings; b) "Analyst": a person performing the analysis functions necessary for the issuance of a rating; c) "Rated Entity": a legal entity whose solvency is explicitly or implicitly rated by a Rating Agency, whether or not it has requested such rating or provided information for its issuance; d) "Rating": an opinion issued by applying a well-defined and established classification system providing for different rating categories, concerning the solvency of an entity, the credit quality of a debt instrument or a security representing a claim; e) "Specification Document": the annex to this Instruction; f) "Rating Category": a symbol used to identify each rating, within each class of ratings, in order to distinguish the risk characteristics specific to different types of entities, issuers and rated financial instruments or securities; g) "Related Third Parties": the originator, arranger, or any other party interacting with the Rating Agency on behalf of the Rated Entity, including any person directly or indirectly linked to it by a control relationship; h) "Control": the relationship existing between commercial companies within the meaning of Articles 173 et seq. of the Uniform Act on Commercial Companies and Economic Interest Groups; i) "Structured Financial Instrument": an instrument resulting from a securitization transaction or structure within the meaning of the regulation on Credit Securitization Common Funds and securitization transactions.

Article 2: Object
This Instruction sets out the conditions for operating a Rating Agency on the UMOA regional financial market.

Article 3: Scope of Application
This Instruction applies to:

• ratings of companies or entities making a public offering, as well as those of the securities they issue;
• ratings of guarantors involved in public offering transactions.

It does not apply to ratings of debt securities issued by a State or group of States.

Article 4: Use of Ratings
In the context of public offering transactions, issuers may only rely, when requesting regulatory approval (visa), on ratings issued by Rating Agencies approved in accordance with Articles 5 et seq. of this Instruction.

TITLE II

REGULATION OF CREDIT RATING AGENCY ACTIVITIES

CHAPTER I

APPROVAL PROCEDURE

Article 5: Prior Approval
The operation of a Rating Agency on the UMOA regional financial market is subject to prior approval by the Council.

Article 6: Application for Approval
6.1 The application file is submitted to the Council. It must contain the following documents and information:
a) Full name of the Rating Agency and address of its statutory headquarters or offices within the Union; b) Name and contact details of its legal representative; c) Legal form and management structure; d) Rating classes for which the Rating Agency requests approval; e) Description of methods and procedures applied to issue ratings; f) Policies and procedures for identifying and managing conflicts of interest; g) Information regarding the Rating Agency's employees; h) Remuneration scheme of the Rating Agency; i) Ancillary services; j) Activity program indicating where the Rating Agency intends to exercise most of its professional activities.

6.2 A group or consortium of Rating Agencies may submit a joint application. In this case, the members of the group or consortium appoint an Agency whose headquarters is established within the Union to submit the application on behalf of the group or consortium.
The appointed Rating Agency provides the required documents and information for each member of the group or consortium.

Article 7: Registration and Examination of Application File Within ten days of receiving the application for approval, the Council verifies whether the application file is complete.
When the file is complete, the Council has sixty (60) days to approve the Rating Agency by assigning it a reference number. Otherwise, it sets a deadline by which the Rating Agency must provide missing information; failing that, it closes its file. The application is examined based on the organizational and operational requirements defined in the Specification Document.

Article 8: Decision Approving a Rating Agency The approval decision is notified to the Rating Agency and published as an announcement in the Official Stock Exchange Bulletin (BOC).
Any modification concerning the characteristic elements listed in the initial approval file must be submitted for prior approval by the Council.
The Council's approval is subject to payment of a fee, the amount of which is fixed by Instruction.

Article 9: Withdrawal of Approval
The Council withdraws the approval of a Rating Agency that:
a) expressly renounces it or has not issued any ratings during the preceding twenty-four (24) months; b) obtained its approval through false statements or any other irregular means; c) no longer meets the conditions for approval; d) has breached provisions of this Instruction governing the operating conditions of Rating Agencies.

CHAPTER II

SUPERVISION OF ACTIVITIES

Article 10: Supervisory Authority
The Council is vested with all inspection powers to ensure compliance by Rating Agencies with the clauses and conditions of the Specification Document annexed to this Instruction.

Article 11: Powers of the Supervisory Authority
11.1 To carry out its mission, the Council is vested with all necessary supervisory and investigative powers. It exercises these powers:
a) directly; b) in collaboration with other authorities; or c) by referring matters to the competent judicial authorities.

11.2 The Council is endowed with the following powers:
a) access to any document, in any form, and receive copies thereof; b) require information from any person and, if necessary, summon and hear any person to obtain such information; c) conduct on-site inspections with or without prior notice.

Article 12: Supervisory Measures
The Council may take the following measures:
a) withdraw approval in accordance with Article 9 above; b) impose a temporary prohibition on issuing ratings; c) suspend the use of ratings; d) adopt appropriate measures to ensure that Rating Agencies continue to comply with their legal obligations; e) issue a public communication when a Rating Agency breaches the obligations provided by this Instruction; f) refer matters to the competent judicial authorities for criminal proceedings, where applicable.

TITLE III

ISSUANCE OF RATINGS

Article 13: Independence and Prevention of Conflicts of Interest Rating Agencies ensure that no existing or potential conflict of interest involving them as issuers of a rating, or involving their directors, employees, or any person directly or indirectly linked to them by a control relationship, affects the issuance of said rating. To comply with the preceding paragraph, Rating Agencies meet the organizational and operational requirements set out in the annex to this Instruction.

Article 14: Employees
14.1 Rating Agencies ensure that those of their employees directly involved in the rating process possess appropriate knowledge and experience relative to their assigned tasks.
14.2 Rating Agencies ensure that those of their employees directly involved in the rating process are not authorized to enter into, nor participate in, negotiations concerning fees or payments due with a Rated Entity or any person controlling the Rated Entity.
14.3 Rating Agencies ensure that those of their employees directly involved in the rating process comply with the rules applicable to employees set out in the annex to this Instruction.
14.4 Rating Agencies establish a rotation mechanism for Analysts and persons responsible for approving ratings so that they are not continuously associated with providing rating services to the same Rated Entity or its Related Third Parties for a period exceeding two years.
The break period after which Analysts and persons responsible for approving ratings may again be associated with providing rating services to the Rated Entity or its Related Third Parties referred to in the first paragraph shall not be less than one year.
14.5 The remuneration and performance evaluation of Analysts and persons responsible for approving ratings must not depend on the revenue generated by the Rating Agency from its commercial relationship with Rated Entities or Related Third Parties to whom the said Analysts or persons provide services.

Article 15: Rating Methods
15.1 Rating Agencies publish the methods, models and main assumptions they use in their rating process.
15.2 Rating Agencies ensure that the ratings they issue and disseminate are based on an analysis of all available information relevant to their rating methods. They take all necessary measures to ensure that the information used for assigning a rating is of sufficient quality and comes from reliable sources.
15.3 When a Rating Agency uses one or more existing ratings established by another Rating Agency concerning underlying assets or structured financial instruments, it does not refuse to rate an Entity or Financial Instrument on the grounds that a portion of said Entity or Financial Instrument has already been rated by another Rating Agency.
Rating Agencies record all cases in which, within their rating process, they downgrade existing ratings established by another Rating Agency concerning underlying assets or structured financial instruments, and provide justification for such downgrades.
15.4 Rating Agencies monitor their ratings and review them whenever necessary. They put in place internal procedures to track the impact of changes in the macroeconomic and UMOA regional financial market environment on their ratings.
15.5 When a Rating Agency modifies its rating methods, models or main assumptions:
a) it immediately discloses the likely list of ratings that will be affected, using the same communication means used to disseminate the relevant ratings; b) it reviews the affected ratings as soon as possible, at the latest within three months following the modification, and, in the interim, places the relevant ratings under observation; c) it immediately performs a new rating for all ratings that were based on the methods, models or assumptions subject to modification.

Article 16: Publication and Presentation of Ratings
16.1 Rating Agencies immediately publish any rating, as well as any decision to discontinue a rating, in the Official Stock Exchange Bulletin (BOC) of the Regional Securities Market (BRVM).
The first paragraph does not apply to ratings distributed on subscription.
16.2 Ratings are presented in accordance with the requirements set out in Section IV of the Specification Document.
16.3 When a Rating Agency issues a rating concerning a Structured Financial Instrument, it ensures that it meets one of the following two conditions:
a) it clearly differentiates the rating categories that may be assigned to structured financial instruments from those used for other types of rated Entities or instruments; b) it publishes a report providing a detailed description of the rating method used to establish the rating, as well as an explanation regarding the differences, on the one hand, between this method and establishing ratings for any other type of Entity or financial instrument, and on the other hand, between the risk characteristics inherent to a Structured Financial Instrument and those linked to any other type of Entity or financial instrument.
16.4 Rating Agencies publish the policies and procedures they apply regarding unsolicited ratings.
16.5 When a Rating Agency publishes an unsolicited rating, it indicates therein that neither the Rated Entity nor any Related Third Party participated in the rating process and that it itself did not have access to the relevant accounts and other internal documents of the Rated Entity or Related Third Party.
Unsolicited ratings are identified by a distinct rating category.

Article 17: General and Periodic Publications
17.1 Rating Agencies immediately publish and update all of the following information:

1. actual and potential conflicts of interest referred to in Section II, point 1 of the Specification Document;
2. a definition of what they consider to be, or not be, ancillary services to their main activity, namely rating activities;
3. their policy on the publication of their ratings and related communications;
4. the general nature of their remuneration scheme;
5. the rating methods, models and main assumptions they use, as well as any significant modifications made thereto;
6. any significant modification to their practices, procedures and processes.

17.2 Rating Agencies periodically publish and transmit to the Council the following information:

1. every six months, data concerning historical default rates of their rating categories, indicating, where applicable, the long-term evolution of these default rates;
2. annually, the following information:
   a) a list of their ten largest clients, ranked by percentage of revenue generated by each; b) a list of clients whose contribution to the growth rate of their revenue during the previous financial year exceeded, by a factor greater than one and a half times, the growth rate of their overall revenue.

Article 18: Transparency Report
Rating Agencies annually publish a transparency report containing the following information:

1. detailed information on their legal form, management structure and capital ownership;
2. a description of their quality control system;
3. statistics concerning their staff members respectively assigned to establishing new ratings, reviewing existing ratings, as well as evaluating and managing the methods and models used;
4. a description of their archiving policy;
5. the conclusions of their annual internal control regarding compliance with the independence obligation;
6. a description of their rotation policy for management and Analysts;
7. financial information regarding their revenue, broken down by income generated, on the one hand, by their rating activity and, on the other hand, by the provision of other services, with a complete description of each type of income.

This annual report is published no later than three months following the end of the financial year and remains available on the Rating Agency's website for at least five years.

Article 19: Publication Fees
Rating Agencies may not charge fees for information provided in accordance with Articles 15 to 18.

TITLE IV

REPORTING OBLIGATION, TRANSITIONAL AND FINAL PROVISIONS

CHAPTER I

REPORTING OBLIGATIONS

Article 20: Reporting Obligation
Each year, the Council will assess the degree of application of the provisions of this Instruction, including the level of trust accorded to ratings within the Union and the adequacy of remuneration paid to Rating Agencies by Rated Entities. It will submit a report on this matter to the UMOA Council of Ministers.

CHAPTER II

TRANSITIONAL AND FINAL PROVISIONS

Article 21: Transitional Provision
Rating Agencies already operating in the UMOA adopt any necessary measures to comply with its provisions and submit an application file within six months following the date of entry into force of this Instruction.

Article 22: Final Provision
This Instruction, which will be published where necessary, enters into force as of the date of its signature.

Done in Abidjan, on 23 November 2009

The President
Léné SEBGO

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ANNEX

SPECIFICATION DOCUMENT FOR CREDIT RATING AGENCIES

Section I: Organizational Requirements

1. Every Rating Agency has a board of directors responsible for ensuring:
   a) the independence of the rating process; b) that conflicts of interest are adequately identified, managed and disclosed; c) that the Rating Agency complies with other requirements set by this Instruction.

2. Every Rating Agency is organized in a manner guaranteeing that its commercial interests as a company do not hinder the independence and reliability of the rating process.
   The management of the Rating Agency must satisfy conditions of honorability, as well as sufficient professional qualification and experience, and ensure sound and prudent management of the Rating Agency. The majority of board members, including the independent member(s), possess sufficient expertise in financial services. At least one independent board member has in-depth knowledge and high-level experience in structured credit markets and securitization. In addition to the board's overall responsibility, the independent member(s) assume the specific mission of controlling the development of rating policy, the effectiveness of the internal quality control system applied to the rating process in terms of preventing conflicts of interest, as well as governance and compliance procedures, including the effectiveness of the control unit referred to in point 7 of this section. The opinion of the independent board member(s) on these matters is presented periodically to the board and communicated to the Council whenever requested.

3. Every Rating Agency puts in place policies and procedures guaranteeing compliance with the provisions of this Instruction.

4. Every Rating Agency has sound accounting and administrative procedures, internal control mechanisms, effective risk assessment techniques and efficient systems for controlling and safeguarding its IT infrastructure.

5. Every Rating Agency puts in place organizational and administrative procedures enabling it to identify, prevent and, where applicable, manage conflicts of interest referred to in Section II, point 1. It records all significant risks threatening its independence as an Agency and the independence of those employees associated with the rating process, as well as the safeguard measures adopted to mitigate these risks.

6. Every Rating Agency uses appropriate systems to guarantee the continuity and regularity of its rating activity.

7. Every Rating Agency sets up a control unit responsible for periodically monitoring the methods and models used by the Rating Agency as well as significant modifications made thereto, including the adequacy of these methods and models for evaluating new financial instruments.
   This control unit must be independent of the departments responsible for rating activities and reports to the board members referred to in point 2 of this section.

8. Every Rating Agency monitors and evaluates the adequacy and effectiveness of the systems, internal control mechanisms and other devices it has implemented under this Instruction and takes any appropriate measures to remedy any shortcomings.

Section II: Operational Requirements

1. Every Rating Agency identifies and eliminates or, where applicable, manages and discloses potential or actual conflicts of interest likely to influence the analysis and judgment of Analysts involved in establishing credit ratings and persons responsible for approving them.

2. Every Rating Agency publishes the names of Rated Entities or Related Third Parties generating more than 5% of its annual revenue.

3. Every Rating Agency refrains from issuing a rating or withdraws an existing rating in the following cases:
   a) the Rating Agency, an Analyst who participated in establishing the rating or a person responsible for approving ratings holds directly or indirectly financial instruments of the Rated Entity or Related Third Party, or any other participation in said Rated Entity or Related Third Party; b) the issued rating concerns a Rated Entity or Related Third Party directly or indirectly linked to the Rating Agency by a control relationship; c) an Analyst who participated in establishing the rating or a person responsible for approving ratings is a member of the administrative or management body of the Rated Entity or Related Third Party.

4. Every Rating Agency refrains from exercising consulting activities with a Rated Entity or Related Third.