The Securities and Exchange Commission (SEC) is proposing an overhaul of its regulations governing credit rating agencies to bolster the integrity of the local debt market and attract broader investor participation.

In a draft memorandum circular released for public comment, the regulatory body laid out amendments to the 2015 Implementing Rules and Regulations of the Securities Regulation Code.

The initiative is part of a broader push to align the country’s financial framework with international benchmarks, particularly the standards set by the International Organization of Securities Commissions.

“A deeper corporate bond market depends on the credibility of the institutions that support it,” SEC Chairperson Francis Lim said.

He noted that strengthening the oversight of rating agencies is essential to reinforcing the independence of the credit rating process, which ultimately fosters greater investor confidence and encourages wider market activity.

Under the proposed rules, the commission plans to expand regulatory coverage. The scope of Rule 39.1.5 under the current regulations will widen to encompass an array of financial instruments. This includes corporate bonds, commercial paper, structured products, sukuk, covered bonds, and sustainability-linked instruments, ensuring that regulatory oversight moves in tandem with modern financial innovation.

The commission is also tightening its gatekeeping mechanisms by introducing more rigorous accreditation standards. Rating agencies must demonstrate robust capital governance, enhanced operational capabilities, and proper staffing.

Applications will require a detailed business plan, corporate affiliations of major shareholders, and formal evidence of board independence.

To ensure long-term financial resilience, the SEC is introducing a phased minimum capital requirement. Under the draft guidelines, agencies must hold at least ₱50 million in capital at the time of accreditation, which must then scale up to ₱70 million after a three-year transition period.

To safeguard the rating process from commercial pressures, the framework mandates an absolute functional separation between business development and analytical teams. The business development group will handle commercial terms and client communications, while analysts focus strictly on credit assessments. Furthermore, rating agencies must ensure that a majority of their board members, including the chairperson, are independent directors.

The reforms also target familiarity threats by imposing stricter analyst rotations. Lead analysts will be barred from serving a single rated entity for more than four consecutive years, followed by a mandatory two-year cooling-off period.

To promote accountability, agencies must publish annual transparency reports within four months of the end of each fiscal year, disclosing their governance structures, remuneration policies, historical default rates, and rating transition matrices. (James A. Loyola)