European Union Transparency Report
March 2013
European Union Transparency Report
This Transparency Report is published in accordance with Article 12 and Annex 1, Section E.III of the EU Regulation on
Credit Rating Agencies ((EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on
credit rating agencies, as amended by Regulation (EU) No 513/2011 of the European Parliament and of the Council of 11
May 2011 (hereinafter referred to as the EU Regulation)). It provides information on the operations of Fitch Ratings in the
EU for the fiscal year ending December 2012.
Table of Contents
1. Legal Structure and Ownership ... 3
2. Internal Control Mechanisms Ensuring the Quality of Credit Rating Activities ... 5
3. Information on Allocation of Staff ... 9
4. Record Keeping Policy ... 12
5. Outcome of the Annual Internal Review of the Compliance Function ... 13
6. Management and Rating Analyst Rotation Policy... 14
7. Information on Revenue ... 20
8. Governance Statement ... 21
1. Legal Structure and Ownership
Legal Structure
The Fitch Ratings group of companies established in the EU are listed below. Each of these companies is incorporated in
accordance with applicable national law and registered under the EU Regulation.
1.
Fitch Ratings Limited - established in England
2.
Fitch Ratings CIS Limited - established in England
3.
Fitch France S.A.S. - established in France
4.
Fitch Deutschland GmbH - established in Germany
5.
Fitch Italia S.P.A. - established in Italy
6.
Fitch Polska S.A. - established in Poland
7.
Fitch Ratings España S.A.U. - established in Spain
Fitch Ratings Limited operates largely in the United Kingdom, although it has branches in Sweden, Dubai, South Korea
and Taiwan. Fitch Ratings CIS Limited operates solely via a branch office in Moscow. Each of the other companies listed
has operations based entirely within its country of establishment.
Ownership
The only entity to hold a material stake in any of Fitch Ratings CIS Limited, Fitch France S.A.S., Fitch Deutschland GmbH,
Fitch Italia S.P.A., Fitch Polska S.A. and Fitch Ratings España S.A. is Fitch Ratings Limited. In turn, the only entity to hold
a material stake in Fitch Ratings Limited is Fitch Ratings, Inc., Fitch‟s American rating agency.
a)
Fitch Ratings Limited: ownership – Fitch Ratings, Inc. 100%
b)
Fitch Ratings CIS Limited: ownership – Fitch Ratings Limited 100%
c)
Fitch France S.A.S.: ownership – Fitch Ratings Limited 99.99%, Fimalac S.A. 0.01%
d)
Fitch Deutschland GmbH: ownership – Fitch Ratings Limited 100%
e)
Fitch Italia S.P.A.: ownership – Fitch Ratings Limited 97%, Fitch Ratings, Inc. 3%
f)
Fitch Polska S.A.: ownership – Fitch Ratings Limited 100%
g)
Fitch Ratings España S.A.U.: ownership – Fitch Ratings Limited 100%
Fitch Ratings Limited is 100% owned by Fitch Ratings, Inc. Fitch Ratings, Inc., in turn is 100% owned by Fitch Group, Inc.,
a holding company, which in turn is 50% indirectly owned by Fimalac S.A. of France and 50% indirectly owned by the
Hearst Corporation of the US.
Fimalac S.A. is a holding company listed in Paris. It operates in the financial services sector through Fitch Group, Inc. the
parent company of Fitch Ratings, Inc. It is also present in the real estate sector, mainly through North Colonnade Ltd (the
owner of an office building in London). Alongside these businesses, Fimalac is developing diversified investments, mainly
through its Fimalac Développement subsidiary. It maintains its ownership interest in the Fitch Group, Inc. through Fimalac
Services Financiers, a holding company.
The Hearst Corporation is a privately held diversified media company in the US. Its major interests include magazine,
newspaper and business publishing, cable networks, television and radio broadcasting, internet businesses, TV production
and distribution, newspaper features distribution, business information and real estate. It maintains its ownership interest
in the Fitch Group, Inc. through Hearst Ratings II, Inc., a single purpose subsidiary.
2. Internal Control Mechanisms Ensuring the Quality of Credit Rating Activities
I.
Introduction
This document describes
the internal control activities and tools of Fitch Ratings, Inc., and each of Fitch Ratings, Inc.‟s
subsidiaries that issue ratings under the trade name of Fitch Ratings, including Fitch Ratings (Thailand) Ltd and Fitch
Ratings Lanka Ltd (together, Fitch).
II.
Policy Framework
All Fitch policies and procedures, and any subsequent amendments to such policies and procedures, are designed to be
consistent with Fitch‟s Code of Conduct, which incorporates the global best practices outlined in the IOSCO Code of
Conduct Fundamentals for Credit Rating Agencies, and to comply with the regulations issued by the various governmental
entities worldwide that regulate Fitch.
During the policy formulation stage, input is gathered from all relevant constituents within Fitch including, where
appropriate, the senior management of the Rating Group, the Credit Policy Group, the Legal Group, the Global Operations
Management Group and the Global Compliance Group. Once the proposals are finalised, they are subject to review and
approval or amendment in accordance with Fitch‟s written procedures. Fitch‟s policies pertaining to the Code of Ethics are
also subject to review and approval by the Fitch Ratings Inc. and Fitch Ratings Ltd. boards.
The objectives that the Internal Control Framework is intended to serve include adherence to the following policies and
procedures:
Fitch‟s Code of Ethics, which includes the Code of Conduct and policies addressing the management of conflicts of
interest.
Internal ratings process manuals, which provide detailed instruction regarding the ratings creation process.
Criteria management policies, which govern the development, application and testing of Fitch‟s analytical criteria.
Policies setting forth the obligations and operations of the Credit Policy Group.
III.
Levels of Control
Control is exercised by the following bodies:
Directly by the supervisors within the analytical groups, supported by the Global Operations Management Group and the
applications that facilitate the ratings process and dissemination of ratings.
The Credit Policy Group led by the Chief Credit Officer.
The Global Compliance Group.
Executive Management.
Board of Directors of Fitch Ratings, Inc. and of Fitch Ratings Limited.
Fitch‟s core control functions – the Global Compliance Group, Global Operations Management Group and Credit Policy Group – are
operated at a regional, rather than local, level with staff based in Fitch‟s New York and London offices providing support and oversight to
all of the offices within the Fitch Ratings, Inc. organizational structure. In addition, the Global Compliance Group has a Compliance
Officer for Latin America with staff located in the region to support Fitch‟s Latin American subsidiaries.
IV.
The Analytical Groups and Global Operations Management
The overall responsibility to ensure that Fitch‟s policies and procedures are followed rests with the senior managers of the individual
groups within Fitch (Global Group Heads of the analytical groups and Regional Group Heads at a geographical/jurisdictional level).
These managers receive support from the Global Operations Management Group, which provides policy training and develops a number
of applications and management reports to facilitate compliance and support the managers‟ monitoring and review of the overall
compliance of their respective groups with applicable policies and procedures.
V.
The Credit Policy Group
The Credit Policy Group (CPG) is independent of the analytical rating groups and includes Group Credit Officers, Regional Credit
Officers, quantitative analysts, a Director for Model Management and a Credit Market Research team. CPG is responsible for ensuring
that rating criteria are appropriate and that rating committees take the necessary actions when Fitch identifies a sustained shift in a risk
profile. As such, CPG serves as a risk assessment function with respect to Fitch‟s analytical work. In fulfilling these responsibilities, the
Regional and Group Credit Officers:
Aggregate risks across ratings by focusing on risk identification coordination across sectors and regions.
Conduct portfolio reviews for quality control, ratings performance and comparability.
Use developing trends in issuance volumes, product innovations, or structural change to appropriately and constructively raise
awareness of potential disconnects from current approaches.
Link rating trends with current fundamentals, macro-economic developments and analytically defined expectations by industry or
sector.
Monitor that analytical groups are addressing new developments with an appropriate sense of urgency and rigor. Report on and
make recommendations in certain cases.
Develop and nominate areas of topical research that can be used to frame priorities or identify the next potential credit market
development.
Ensure sensitivity analysis and/or forecasts are utilized in each group where appropriate to help ensure that ratings are forward
looking.
Review and approve methodologies and models used in rating analysis.
Leverage participation in various committees and discussions to ensure new or developing issues are shared and addressed across
rating groups.
Oversee the analytical criteria review and approval process. Analytical groups are responsible for proposing suitable criteria that
supports ratings. Members of CPG review and approve criteria.
Separately, the Credit Market Research team within CPG conducts regular transition and default studies to monitor the performance of
Fitch‟s ratings over time and across analytical sectors and geographical regions.
CPG has also implemented a training program – Fitch Credit Academy – to provide a formal structure to developing and assessing the
knowledge and skills analysts need to be effective in their jobs evaluating credit. The program consists of two levels of training: the first
level introduces fundamental credit concepts and the second level consists of ten specialized curricula that are designed to develop the
relevant knowledge and skills appropriate for each business analytical group, sector and region, as applicable. Fitch Credit Academy is
initially targeting Analysts and Associate Directors.
VI.
The Global Compliance Group
Compliance with Fitch‟s policies is monitored by the Global Compliance Group. The Group is responsible for assessing compliance with
Fitch‟s policies and procedures pertaining to ratings assigned using Fitch‟s international rating scales, including Fitch‟s „Code of Conduct‟
and related policies concerning conflicts of interest. The group is headed by the Chief Compliance Officer, who is assisted by two
Regional Compliance Officers who are responsible for i) Europe, Middle East, Africa and Asia, and ii) the Americas respectively. The
Regional Compliance Officer with responsibility for the Americas is based in New York and has oversight of a Compliance Officer for
Latin America who is based in Buenos Aires and who supports Fitch‟s local offices in the region.
The Chief and Regional Compliance Officers monitor and assess Fitch‟s compliance with its policies on an on-going basis by a variety of
methods including reviewing reports produced by four functions as described below within the Global Compliance Group and reports
generated via Fitch‟s Violations Reporting (whistle blower) line. As necessary, Compliance staff follows up with the appropriate
managers to address any issues identified. The Chief and Regional Compliance Officers also have responsibility for ensuring that
appropriate reviews are conducted in response to possible breaches of Fitch‟s policies. In certain circumstances, the Chief Compliance
Officer may request the Compliance Audit Group to perform a special review.
The core responsibilities of the four teams within the Global Compliance Group are set forth below:
Regulatory Compliance:
works with members of Fitch‟s in-house Legal Group, Credit Policy Group, and Global Operations
Management Group to support the incorporation into Fitch‟s policies and procedures the obligations set forth in all applicable regulations
over international ratings. Regulatory Compliance is responsible for preparing new applications for registration/recognition and for
ensuring that Fitch meets any regulatory reporting obligations that it faces with respect to its international scale ratings. This team also
conducts regular email reviews of Fitch's staff to identify cases of policy non-compliance.
Personal Conflicts Monitoring:
monitors compliance with Bulletin 13: Worldwide Confidentiality, Conflicts of Interest and Securities
Trading Policy via regular monitoring of employee trading activities, outside interests and other potential conflicts. This Group refers an
identified potential conflict to the employee‟s manager for resolution.
Compliance Audit:
The worldwide compliance audit program is risk based and includes audits of analytical groups and functional audits,
which span a variety of groups. The results of each compliance audit are detailed in an audit conclusion memo provided to senior
management of the audited group, executive management, and the boards of Fitch Ratings, Inc. and Fitch Ratings Limited.
Compliance Monitoring:
reviews throughout the year certain management reporting produced and used by other groups within Fitch.
Compliance Monitoring will identify relevant reports and metrics that will augment the monitoring performed by Compliance Audit‟s
periodic reviews. Compliance Monitoring will provide its analysis to the Chief and Regional Compliance Officers.
VII.
Executive Management and Board Oversight
The Boards of both Fitch Ratings Inc. and Fitch Ratings Limited, the senior-most credit rating agencies within Fitch Group, each operate
according to a governance charter and supporting board procedures to ensure that each respective board has oversight of all Fitch
policies and procedures related to the (i) creation, maintenance and enforcement of policies and procedures for determining credit
ratings, (ii) creation, maintenance and enforcement of policies and procedures for addressing, managing and disclosing conflicts of
interest, (iii) effectiveness of the internal control system with respect to policies and procedures for determining credit ratings and (iv)
compensation and promotion policies and practices of Fitch. A schedule for implementation of the board procedures has also been
adopted. The board-level reviews set forth with the relevant procedures are conducted on behalf of the entire Fitch Ratings, Inc. group
of companies that operate using the Fitch Ratings name.
VIII.
Technological Structure of Internal Control Mechanisms
Each of the Global Operations Management Group, the Credit Policy Group and the Global Compliance Group utilizes various forms of
technology and tools to carry out its respective responsibilities. In addition, Fitch‟s Information Technology group manages the
technology infrastructure for Fitch globally.
A. Global Operations Management
Develops and maintains applications and procedures to implement rating policies consistently across regions and analytical groups.
Develops and maintains applications and procedures to document the rating process, including the committee process.
Provides management reporting for managers to review compliance with rating policies and procedures.
B.
Credit Policy Group
Utilizes a database of criteria and models to measure compliance with review policies and procedures.
Participates in the approval process of criteria and models.
Provides and reviews management reporting to review compliance with rating policies and procedures.
C.
Global Compliance Group
The Regulatory Compliance function maintains a database of regulations applicable to international scale ratings that permits the
function to measure compliance of Fitch policies and procedures with regulatory requirements.
The Compliance Audit function reviews compliance by various Fitch groups with policies and procedures, contributing to
enhancements in Fitch‟s technological structure.
The Personal Conflicts Monitoring function utilizes a securities monitoring system to review employee personal securities
transactions for compliance with confidentiality and conflict of interest policies.
D.
Information Technology
Manages access control for folders, files and applications for compliance with confidentiality and conflict of interest policies.
Manages data security (e.g. computer and network security) for compliance with confidentiality policies.
Maintains and monitors infrastructure including desktops, networks and data centers required for ongoing operations.
Manages and tests business continuity and disaster recovery plans.
Develops and maintains custom applications required to support core ratings activities, such as workflow systems, analysis and
surveillance systems, publishing and document management systems.
3. Information on Allocation of Staff
The tables below detail the total number of employees for each EU entity, as at the end of the fiscal year ending December 31, 2012,
identifying:
a)
The number of analytical staff employed within the ratings groups who work on new credit ratings and credit rating reviews
(including supervisors)
b)
The total number of analytical staff employed within the Credit Policy Group and therefore responsible for methodology or model
appraisal
c)
The total number of analytical supervisors within both the ratings groups and the Credit Policy Group
d)
The total number of global group heads – the senior-most managers of each analytical group, including the Global Analytical Head
that these individuals report into.
e)
The total number of support staff
Fitch France S.A.S
Analytical staff employed within rating groups 29
Analytical staff employed within Credit Policy Group 0
Total Analytical Staff 29
Of which analytical supervisors 13
Of which global group heads 0
Total Support Staff 16
Total Staff 45
Fitch Deutschland Gmbh
Analytical staff employed within rating groups 27
Analytical staff employed within Credit Policy Group 0
Total Analytical Staff 27
Of which analytical supervisors 6
Of which global group heads 0
Total Support Staff 17
Total Staff 44
Fitch Italia S.p.A
Analytical staff employed within rating groups 22
Analytical staff employed within Credit Policy Group 1
Total Analytical Staff 23
Of which analytical supervisors 5
Of which global group heads 0
Total Support Staff 10
Fitch Polska S.A.
Analytical staff employed within rating groups 12
Analytical staff employed within Credit Policy Group 0
Total Analytical Staff 12
Of which analytical supervisors 1
Of which global group heads 0
Total Support Staff 6
Total Staff 18
Fitch Ratings Espana S.A.U.
Analytical staff employed within rating groups 18
Analytical staff employed within Credit Policy Group 0
Total Analytical Staff 18
Of which analytical supervisors 7
Of which global group heads 0
Total Support Staff 12
Total Staff 30
Fitch Ratings CIS Ltd
Analytical staff employed within rating groups 27
Analytical staff employed within Credit Policy Group 0
Total Analytical Staff 27
Of which analytical supervisors 3
Of which global group heads 0
Total Support Staff 19
Total Staff 46
Fitch Ratings Ltd (Inc. branches)
Analytical staff employed within rating groups 230
Analytical staff employed within Credit Policy Group 18
Total Analytical Staff 248
Of which analytical supervisors 70
Of which global group heads 2
Total Support Staff 221
Total Staff 469
Further information on senior management can be found in section 6 of this report.
Notes to the Tables:
1.
Analytical supervisors are defined as those analytical employees holding a title of Senior Director or above. Quorum requirements
for ratings committees require at least one analyst with a title of Senior Director or above to be present.
2.
Fitch does not maintain separate surveillance teams with respect to its corporate or public finance groups in Europe. Thus, the
analytical staff in these areas work on both assigning new ratings and monitoring existing ones. In addition, while Fitch has
historically maintained a separate structured finance surveillance group within Europe, which is based in London, simple
segmentation between surveillance and new transactions analysts would be misleading as Fitch is increasingly running some
groups on a fungible basis. As
such, it is not appropriate to classify our structured finance analysts purely as “new deal” or
“surveillance” analysts.
3.
New methodologies or models, and amendments to existing methodologies or models that would have a material impact on a given
set of ratings are required under Fitch policy to be reviewed by a Peer Review Committee. While senior analysts from across the
analytical groups participate in this process, only staff drawn from the Credit Policy Group are permitted to vote on the final
outcome.
4.
Fitch has four global rating group heads worldwide that report to one global analytical head. Each of these individuals has global
responsibility for one or more rating product areas as follows: 1) corporates and REITS; 2) global infrastructure and United States
public finance; 3) financial institutions, insurance, fund and asset management, sovereign and international public finance; and 4)
structured finance and covered bonds.
4. Record Keeping Policy
Fitch has in place global file maintenance and record-keeping policies and practices that are designed, collectively, to ensure that it
maintains adequate records in accordance with all applicable laws and regulations including, but not limited to, the EU Regulation. The
two main policies that are applicable to Fitch‟s rating-related records – the File Maintenance and Recordkeeping Policy for Analysts, and
the File Maintenance and Recordkeeping Policy for the Business and Relationship Management Group – are published on Fitch‟s public
website, and can be found by selecting the „Code of Ethics‟ link from any page on the website. Links to these documents are provided
below.
http://www.fitchratings.com/web/en/dynamic/about-us/code-of-ethics-and-conduct.jsp
Additional details regarding the exact content of the information that must be included in certain documents referenced in the File
Maintenance and Recordkeeping Policy for Analysts – such as rating committee minutes – are contained in internal manuals that provide
detailed procedural guidance on the rating process. Other non-analytical groups, such as the Accounts Group, maintain separate
internal recordkeeping policies.
Collectively, these policies and procedures require that, among other things, Fitch maintains records for a period of at least five years
that cover:
(a) for each rating decision, the identity of the analysts participating in the determination of the credit rating, the identity of the
committee chair, information as to whether the credit rating was solicited or unsolicited, and the date on which the credit rating
action was taken;
(b) records relating to fees received from each rated entity or related third party, or any user of ratings;
(c) records of each subscriber to Fitch‟s credit ratings or related services;
(d) records documenting the established procedures and methodologies used by Fitch to determine credit ratings;
(e) the internal records and files, including non-public information and work papers, used to form the basis of any credit rating decision
taken;
(f) credit analysis reports, private credit rating reports and internal records, including non-public information and work papers, used to
form the basis of the opinions expressed in such reports;
(g) records of the procedures and measures implemented by Fitch to comply with any applicable regulation; and
(h) copies of internal and external communications, including electronic communications, received and sent by Fitch and its employees
in relation to credit rating activities.
5. Outcome of the Annual Internal Review of the Compliance Function
A review of certain responsibilities of the Compliance Group for 2012 was conducted. The scope of the audit of compliance focused on
the Regulatory Compliance function‟s responsibilities involving the monitoring and tracking of regulatory requirements, review of Fitch
policies to ensure they address regulatory requirements and the submission of regulatory filings between January 1 and December 31,
2012.
The results found that the Regulatory Compliance function substantially complies with policy requirements. No evidence of
non-compliance with regulation was identified and testing conducted during the review did not identify any regulatory filings that were not filed
by the Regulatory Compliance function. Some opportunities for improvement were identified relating to i) the monitoring process and
internal documentation relating to regulatory filings, ii) the policy review framework and iii) recordkeeping around regulatory requirements.
Regulatory Compliance is in the process of making certain enhancements to its procedures in response to the audit recommendations,
and the management responses provided will be subject to a follow up audit to ensure that all such actions are implemented in
accordance with the commitments provided.
6. Management and Rating Analyst Rotation Policy
Management
Fitch maintains separate legal entities in the UK, France, Germany, Italy, Spain and Poland largely for fiscal reasons. In maintaining
separate legal entities, Fitch complies with all local corporate law requirements as well as the applicable corporate governance
requirements of the EU Regulation. Thus, each of Fitch Ratings Limited, Fitch Ratings CIS Limited, Fitch France S.A.S., Fitch
Deutschland GmbH, Fitch Italia S.P.A., Fitch Polska S.A. and Fitch Ratings España S.A.U. is set up in a manner consistent with the
applicable local corporate law. The individual board members of each of our EU companies are identified within the tables provided as
part of Section 8 of this report.
Separate from the board members, each of Fitch‟s smaller EU credit rating agencies - Fitch Ratings CIS Limited, Fitch France S.A.S.,
Fitch Deutschland GmbH, Fitch Italia S.P.A., Fitch Polska S.A. and Fitch Ratings España S.A.U. – has an office head who has
day-to-day responsibility for the smooth functioning of the office. These office heads are members of the global Business and Relationship
Management Group and, as such, have no analytical responsibilities. They report to the head of EMEA Corporate and Public Finance
Business and Relationship Management, who is based in London.
The organisation of Fitch‟s analytical management is not structured around our corporate organisation. Each of the analytical staff
employed within Fitch‟s EU subsidiaries reports to a regional group head, in some cases through a series of line managers. The
regional rating group heads report to a global group head. Currently one
of Fitch‟s four global rating group heads is based in London,
and three are based in the United States of America. All four analytical global group heads report to a Global Analytical Head who is
based in London. This individual reports to the President and CEO of Fitch Ratings, Paul Taylor, who is based in London.
Fitch‟s core support functions – including the Global Compliance Group and the Credit Policy Group – are structured in a similar way,
with local staff operating regionally and reporting to a regional group head, who in turn reports to a global head.
Analyst Rotation
The analyst Rotation Policy in effect with respect to Fitch‟s EU operations was developed to be consistent with the EU Regulation. It
establishes, with respect to any EU credit rating agency with over 50 staff, maximum permissible time periods for covering a rated entity
as a primary analyst, secondary analyst, or committee chair of four, five and seven years respectively, followed by a minimum of two
years away from interacting with the rated entity or voting in its rating committees. More elaborate rules are in place with respect to
structured finance analysts, which require rotation around an originator and/or arranger. In certain circumstances, these rules require
more frequent rotation than the general framework described above.
As provided for within the EU Regulation, at the time of Fitch‟s registration under the Regulation, Fitch obtained an exemption from
applying these requirements in full for Fitch Ratings CIS Limited, Fitch France S.A.S., Fitch Deutschland GmbH, Fitch Polska S.A. and
Fitch Ratings España S.A.U. for practical reasons such as language considerations. As such, in all Fitch credit rating agencies in the EU
with less than 50 employees, other than Fitch Italia S.P.A., the Fitch policy in effect limited analyst rotation requirements to the rating
committee chairs during the fiscal year ending 31
stDecember 2012. However, it should be noted that various aspects of Fitch‟s rating
committee quorum requirements are designed to ensure sufficient challenge to the recommendations of the primary and secondary
analysts.
Extracts from the current version of
Fitch‟s analyst Rotation Policy that are applicable to Fitch‟s EU operations are reproduced in full
overleaf.
ESMA granted an exemption to Fitch Italia S.P.A., similar to those already in place in Fitch‟s other EU companies with under 50
employees, with respect to analyst rotation requirements in late March 2013. Fitch intends to amend its Rotation Policy shortly in light of
this exemption.
Rotation Policy
Effective Date: January 1 2013
Version: 6
Responsibility: Credit Policy Group
A.
General Principles
1.
Fitch will apply the rotation of analysts in line with regulatory requirements in the relevant local jurisdiction.
2.
Analyst rotation will be applied only on a discretionary basis in countries where there are no regulatory requirements. Fitch
welcomes the concept of analyst rotation and the discretion of product group managers will be used in deciding how to rotate
analysts in those countries. Product group managers should balance the benefits of analyst rotation with business needs in
deciding how to rotate analysts. This policy envisages that in countries where there is no regulatory requirement for analyst
rotation, business needs may result in different time scales being used to those outlined below in sections B, C, D and E or no
rotation at all.
3.
This policy applies to all analysts working on International credit ratings and does not apply to Private Ratings, issuers with only
National Ratings and any non-credit rating opinions, such as, for example, Market Implied Ratings, Asset Manager Ratings and
Servicer Ratings.
4.
The details of this policy differ for Structured Finance (RMBS, CMBS, ABS, ABCP, Structured Credit and Covered Bonds) and
Corporate and Public Finance. Managers and analysts must refer to the Sections below for further details.
B.
Regions/Countries where analyst rotation applies and General Rotation Rules
1.
There are regulatory requirements for analyst rotation in the EU, Hong Kong, Japan and Singapore. This policy shall be applied
in full in all Fitch subsidiaries that have more than 50 employees, including employees of branches of Fitch subsidiaries where
that subsidiary has more
than
50 employees in total. It will also be applied to Fitch Italy. As a result, rotation will apply in principle
to analysts employed by Fitch companies in the following countries:
Country
Primary and Secondary Analyst Rotation
Committee Chair Rotation
Dubai
EU Rules apply
EU Rules apply
France
Regulatory Exemption in place
EU Rules apply
Germany
Regulatory Exemption in place
EU Rules apply
Hong Kong
Not until 50 employees in office
Not until 50 employees in office
Italy
EU Rules apply
EU Rules apply
Japan
Primary Analyst only
Not applicable
Korea
EU Rules apply
EU Rules apply
Poland
Regulatory Exemption in place
EU Rules apply
Russia
Regulatory Exemption in place
EU Rules apply
Singapore
Not until 50 employees in office
Not until 50 employees in office
Spain
Regulatory Exemption in place
EU Rules apply
Sweden
Not until analytical staff are employed in this
office and then EU rules apply
Not until analytical staff are employed in this office and then
EU rules apply
Taiwan
EU Rules apply
EU Rules apply
United Kingdom
EU Rules apply
EU Rules apply
Therefore, if an analyst is based in a country not mentioned in the above table, rotation does not apply unless a product manager
decides on a discretionary basis to apply it.
2. EU
Primary and Secondary Analysts
Analyst rotation applies as follows:
1.
Primary analysts may remain in this role for a maximum of four years with respect to a Fitch rated entity. They must then take a
minimum of two years away from covering the rated entity.
2.
Secondary analysts may remain in this role for a maximum of five years with respect to a rated entity. They must then take a
minimum of two years away from covering the rated entity. If the secondary analyst becomes the primary analyst at any stage,
this person can serve no more than four years in total before taking two years away from the rated entity.
3.
With respect to points 1 and 2 above, during the two year “off” period, the analyst may not perform credit rating activities which
are defined as attending management meetings and voting at or chairing rating committees. Observer status at the rating
committee is permitted. This applies to all product areas affected except in the following circumstances:
a)
Analysts who have the title of Managing Director – Subject to the paragraph below, if such analysts are not performing a primary
or secondary analyst role for a rated entity; they may attend management meetings without triggering rotation requirements.
Committee Chairs
Chairs of rating committees may remain in this role for a maximum of 7 years. They must then take a minimum of two years away from
the rated entity. During the two years off, they may not serve as the primary or secondary analyst, or as the committee chair. In addition,
they may not attend management meetings or vote at rating committees. This applies to all product areas. This policy will apply in all
Fitch entities incorporated in the EU and registered under the regulation.
C.
Application in the EU – Corporate and International Public Finance
11.
Analysts will rotate around rated entities.
2.
From 2010, 50% of all primary analysts will be rotated after three years with respect to a rated entity and 50% after 4 years. This
staggered rotation will continue beyond 2014 – 50% of primary analysts will rotate again by 2017 and 2018 respectively and so
on
2.
3.
In the situation where 50% of primary analysts rotate by 2013 there are occasions when a completely new analytical team is
introduced in a given year. In these circumstances the prospective new primary analyst may attend the management meeting for
training in the year before assuming the primary analyst role. Likewise that person may attend but not vote at the rating
committee in the year before assuming the primary analyst role, for training purposes.
1 In the EMEA Corporate product area Primary Analysts are titled “Supervising Analysts” and Secondary Analysts are called “Principal
Analysts”. Both have similar duties to Primary Analysts as described in this bulletin. Therefore both of these roles are limited to a
maximum of four years in time subject to the phased rotation rules outlined in this bulletin. Neither of these roles is permitted to be five
years in length.
4.
Fitch has not adopted a formal rule for the introduction of rotation of secondary analysts except for the requirement that an
analyst can serve for only five years as a secondary analyst or four years if the secondary analyst serves as a primary analyst at
all during this period.
5.
This policy shall be applied at the level of the issuer or rated entity, rather than at the level of a security. As such, Corporate and
International Public Finance groups are not required to apply this policy separately to multiple securities that are issued by one
issuer.
6.
In cases where an issuer or rated entity has both National and International ratings, this policy shall be applied.
D.
Application in the EU – Structured Finance
1.
The rotation period will commence when the primary analyst’s and secondary analyst’s names are entered in Structured Finance
Work Centre (SFWC). The earliest date for the application of this policy is August 2010.
2.
The party around which rotation must be applied will vary, depending on the nature of the transaction, as set forth below:
a.
Sole originator transactions
1.
Primary and secondary analysts must rotate around the originator of securitised assets where there is a sole originator in a
transaction.
2.
Primary analysts may remain in place for up to four years from 2010 after which they must have a minimum two years away from
this originator.
3.
There is not a formal rule for the introduction of rotation of secondary analysts other than the requirement that an analyst can
serve for only five years as a secondary analyst or four years if the secondary analyst becomes the primary analyst at any point
during this period.
4.
A further test also applies; if this test is met, rotation must occur earlier: If the same originator and arranger (an arranger is
defined as the financial institution which has arranged the transaction) act together on three different transactions in a twelve
month period, then the primary and secondary analysts must be rotated away from the originator immediately. (The same
definition is used for a “sponsor” of a Special Purpose Vehicle (SPV). The term arranger and sponsor are frequently used in
Structured Finance and are used interchangeably in this policy.)
5.
Surveillance analysts commence work on transactions from the date a transaction closes and may perform this role for up to four
years. They shall rotate around the originator, unless there is no clear single originator in which case they shall rotate around the
arranger or sponsor of the SPV whose securities have been rated or the entity which has made a shelf filing for that transaction.
(A shelf filing is defined as an arrangement where the ability to issue securities is set up in advance of issuance so that securities
can be issued when market conditions allow.)
6.
Surveillance analysts who are analysing transactions as at the effective date of this policy may remain in place for up to four
years from this date, after which they must have a minimum of two years away from the originator, sponsor or entity which has
made a shelf filing, as the case may be.
b. Multi originator transactions
1
.
Primary, secondary and surveillance analysts shall rotate around the arranger of the transaction or sponsor of the SPV.
2.
They must do so on the same dates/time periods identified for sole originator transactions, without the further rotation tests
applied.
c. Captive transactions including multi-issuance vehicles
1.
If the originator of the assets also arranges/structures the transaction the primary, secondary and surveillance analysts must
rotate around the originator.
2.
The rotation dates/time periods shall be the same as for sole originator transactions without the further rotation test applied.
E. Committee Chairs in the EU in All Analytical Groups
1.
The rotation period commences on the date of the first rating committee after the effective date of this policy, August 2010. This
applies to both Corporate and Structured Finance.
2.
50% of committee chairs must step away from the chair role after six years and the remaining 50% of chairs must step away
after seven years.
3.
Chairs must have two years away from the entity as described in the respective Corporate and Structured Finance analyst
sections in this policy after completing their period as chair.
4.
Chairs will be determined by a formal selection process, consistent with the instruction provided in Section IX of the Rating
Process Manual (RPM) for the relevant analytical group.
5.
In Structured Finance:
a.
If a preliminary committee occurs for a transaction, the rotation period commences on the date of this preliminary committee.
b.
For sole originator transactions the same test as stated in section D 2 a 1 will apply. This means that chairs must rotate around
the originator of securitised assets where there is a sole originator in a transaction. The test identified in section D 2 a 4 will not
apply.
c.
For multi originator transactions the same tests will apply as for primary and secondary analysts. This means that the chair shall
rotate around the arranger/sponsor of the SPV.
F. Independent Committee Members Globally
1.
In addition to the analyst rotation requirements contained within this policy, all rating committees must comply with all relevant
instructions contained within the Rating Process Manual for the product areas. This includes instructions with respect to the
participation of independent committee members at rating committees.
7. Information on Revenue
Description of Business Activities
Fitch‟s European business activities are based on the provision of independent analysis and rating opinions regarding a variety of risks
in the financial markets. These activities cover both the provision of rating opinions to issuers and their agents, and the provision of
ratings-related subscriptions to investors and other interested parties. Such rating activities include the development and provision of
analytical opinions using a number of rating scales, ratings-related data and peer analysis tools, rating models, surveillance products,
research products and other analytical services. These scales, products and services all reflect Fitch‟s independent risk analysis.
Fitch‟s rating opinions do not comment on the suitability of any particular type of investment or the appropriate level of risk for any user of
these rating opinions. In preparing its rating opinions, Fitch is indifferent to the rating or assessment levels achieved and neither
suggests nor cautions against individual „target‟ levels of rating or assessment. Consequently, Fitch does not provide advisory or
consulting services to any entity.
None of Fitch Ratings Limited, Fitch Ratings CIS Limited, Fitch France S.A.S., Fitch Deutschland GmbH, Fitch Italia S.P.A., Fitch Polska
S.A. or Fitch Ratings España S.A. provides any ancillary services as defined by the EU Regulation. Thus, all revenue received by Fitch
within the EU is derived from rating activities.
Revenue
Fitch is in the process of transitioning to a fiscal year which tracks the calendar year. In order to make this change, Fitch's last financial
reporting period ran for the fifteen months from October 1, 2011 to December 31, 2012. The table below provides, for each of Fitch‟s EU
companies, the revenue derived from rating activities during the 15 month fiscal period ended 31 December 2012.
Total Revenue – 15 month period ending 31 December 2012
Fitch Ratings Ltd* (GBP, 000) 126,993
Fitch Ratings CIS Ltd (GBP, 000) 10,005
Fitch France S.A. (EUR, 000) 19,034
Fitch Deutchland GmbH (EUR, 000) 17,676
Fitch Italia SpA (EUR, 000) 10,696
Fitch Ratings Espana SA (EUR, 000) 15,851
Fitch Polska S.A. (PLN, 000) 17,309
8. Governance Statement
Corporate Governance Code
Each of Fitch Ratings Limited, Fitch Ratings CIS Limited, Fitch France S.A.S., Fitch Deutschland GmbH, Fitch Italia S.P.A., Fitch Polska
S.A. and Fitch Ratings España S.A.U. is set up in a manner consistent with the applicable local corporate law. The individual board
members of each of our EU companies are identified in the tables that follow as part of Section 8 of this report.
Fitch Ratings Limited, Fitch Ratings CIS Limited, Fitch France S.A.S., Fitch Deutschland GmbH, Fitch Italia S.P.A., Fitch Polska S.A. and
Fitch Ratings España S.A.U., operate in accordance with their by-laws and all applicable laws and regulations, including the EU
Regulation.
Fitch is not aware of any external corporate governance code that applies to its EU companies. However, in 2011 Fitch Ratings Limited,
the senior-most Fitch credit rating agency within the EU, adopted the Fitch Ratings Limited Governance Charter, along with
supplemental procedures for implementing the responsibilities of the board of directors under the EU Regulation as set forth in the
Governance Charter, and a schedule for the implementation of such procedures.
The Governance Charter was adopted at the level of Fitch Ratings Limited because, as provided for within the EU Regulation, at the
time of its application for registration under the Regulation, Fitch applied for an exemption from the requirement to appoint independent
directors to each of Fitch Ratings CIS Limited, Fitch France S.A.S., Fitch Deutschland GmbH, Fitch Italia S.P.A., Fitch Polska S.A. and
Fitch Ratings España S.A.U.. This request was based on the small size of these companies, the intra-regional nature of the analytical
teams in these companies, and the fact that as Fitch adopts and applies global policies, procedures and methodologies, it wished to
ensure that the implementation of these policies, procedures and methodologies would be assessed in the same manner across each of
its EU companies in order to ensure a fully consistent application. Fitch was granted this exemption with respect to each of the
companies listed.
Thus, the independent directors on the Fitch Ratings Limited board undertake their oversight responsibilities with respect to Fitch‟s entire
EU operations. To ensure that any entity-specific issues are adequately considered, joint board discussions in which the board members
of each of Fitch‟s EU companies (including Fitch Ratings Limited) participate, are held ahead of each Fitch Ratings Limited board
meeting. These discussions cover the topics scheduled for discussion within the Fitch Ratings Limited board procedures.
Relevant extracts from the Fitch Ratings Limited Governance Charter are reproduced in full overleaf. The sections of the Charter that
have not been reproduced address specific details necessary to address the mission statement.
Excerpts from the Fitch Ratings Ltd. Board of Directors Governance Charter (as approved on 20 April 2011)
I.
Introduction
This Governance Charter has been adopted by the Board of Directors (the
“Board”
) of Fitch Ratings Ltd. (the
“Company”
or
“FRL”
) to
assist the Board in the exercise of its responsibilities under applicable law, including Regulation (EC) No 1060/2009 of the European
Parliament and of the Council of 16 September 2009 on credit rating agencies (the
“Regulation”
). The provisions of this Governance
Charter reflect the Board’s commitment to the highest standards of corporate governance and regulatory compliance for global credit
rating agencies.
II.
Mission Statement
A.
The primary responsibility of the Board is oversight of the management of the Company, in accordance with its fiduciary
responsibilities and standards established by law. The Board has delegated responsibility for the day-to-day running of the
Company to a senior management team of good repute and with sufficient skill and experience to ensure the sound and prudent
management of the Company. In particular, as required by the Regulation, the Board will oversee, the following:
1.
The establishment, maintenance and enforcement of policies and procedures which ensure the appropriateness, and
independence from all political and economic constraints, of all credit rating activities.
2.
The establishment, maintenance and enforcement of policies and procedures to identify, manage and disclose any conflicts of
interest.
3.
The effectiveness of the Company’s internal control system with respect to compliance with the Regulation and in particular with
the policies and procedures for determining credit ratings.
4.
The compensation of the independent members of the Board and the Chief Compliance Officer.
B.
The Role of the Independent Directors
In addition to the Independent Directors’ general duties to the Company, the Independent Directors shall monitor the following:
III.
The development of the credit rating policy and of the methodologies used by the Company in its credit rating activities.
IV.
The effectiveness of the internal quality control system of the Company in relation to credit rating activities.
V.
The effectiveness of measures and procedures instituted to ensure that any conflicts of interest are identified, eliminated or
managed and disclosed.
[..]
VII.
Board Composition
At least one-third of the members of the Board, but not fewer than two members of the Board, shall be “independent” within the meaning
of point 13 in Section III of Commission Recommendation 2005/162/EC of 15 February 2005 and shall not be involved in credit rating
activities (all such members, the
“Independent Directors”
). The Board shall determine whether any potential Independent Director is
requisitely independent and shall consider the specific circumstances of each candidate, including whether the individual is free of any
business, family or other relationship, with the Company, its controlling shareholder or the management of either, that creates a conflict
of interest such as to impair his judgment.
Each Independent Director shall immediately disclose to the Board any circumstances which may in any way compromise his
independence and the Board shall determine whether such Independent Director can continue to be an Independent Director. If the
Independent Director is determined to not be requisitely independent, he or she shall immediately resign from the Board.
Each Independent Director shall be appointed for a term not to exceed five years and cannot be re-appointed as an Independent
Director at any time after the expiry of such term. Upon becoming an Independent Director, such Independent Director shall sign a
resignation letter resigning from the Board and any committee thereof as of the last day of such term.
The dismissal of an Independent Director aside from in the circumstances stated above shall take place only in the cases of misconduct
or professional underperformance.
The majority of the members of the Board, including the Independent Directors, shall have sufficient expertise in financial services. If
and for so long as the Company issues credit ratings of structured finance instruments, at least one Independent Director and one other
member of the Board shall have in-depth knowledge and experience at a senior level of the markets in structured finance instruments.
Internal Controls and Risk Management Pertaining to Financial Reporting
The Chief Financial Officer of Fitch Ratings Limited and Head of the European and Asian Accounting Group is responsible on a
day-to-day basis for ensuring that the production of all relevant financial reports and accounts is in accordance with all statutory requirements
and that controls are in place to ensure operational risks – such as error and fraud – are addressed appropriately.
The adequacy of the controls within the Accounts Group are reviewed on an on-going basis by the senior accounts staff and are also
considered by Fitch‟s external auditors during the annual external audit process. The adequacy of internal controls within the Accounts
Group is also formally considered by the board during any statutory approval of the accounts.
Information Pertaining to Voting Rights, Shareholders Meetings, Powers and Rights and the Composition on the administrative,
Management and Supervisory Bodies
Please refer to the appendix tables that follow for this information with respect to each of Fitch Ratings Limited, Fitch Ratings CIS Limited,
Fitch France S.A.S., Fitch Deutschland GmbH, Fitch Italia S.P.A., Fitch Polska S.A. and Fitch Ratings España S.A.U.
Appendix Tables to Governance Statement
Fitch France SAS (the “Company”)
Note:
A reference in the fourth column of this table to an “Article” is to an Article of Association of the Company, as updated after the Extraordinary General Meeting of 29 June 2012.
NO. DIRECTIVE &ARTICLE NO. ARTICLE WORDING PROVISION FROM CONSTITUTIONAL DOCUMENTS
The following information shall be included in the Transparency Report:
1. Fourth Council Directive
78/660/EEC of 25 July 1978 (“78/660/EEC”), Article 46(a)(1)(d)
The information required by Article 10(1), points (c), (d), (f), (h) and (i) of Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids (“2004/25/EC”), where the company is subject to that Directive.
See sections 2 to 6 below.
2. 2004/25/EC, Article 10(1)(c) Significant direct and indirect shareholdings (including indirect shareholdings through pyramid structures and cross-shareholdings) within the meaning of Article 85 of Directive 2001/34/EC (“2001/34/EC”).
Not applicable. The Company does not fall within the scope of Article 85 of Directive 2001/34/EC as it does not have shares which are officially listed on a stock exchange or exchanges situated or operating within one or more Member States.
3. 2004/25/EC, Article 10(1)(d) The holders of any securities with special control rights and a description of those rights.
None.
4. 2004/25/EC, Article 10(1)(f) Any restrictions on voting rights, such as limitations of the voting rights of holders of a given percentage or number of votes, deadlines for exercising voting rights, or systems whereby, with the company‟s cooperation, the financial rights attaching to securities are separated from the holding of securities.
Article 10(3)
Where the shares are encumbered by beneficial ownership (usufruit), the legal owner shall be entitled to the voting right for all collective decisions, unless otherwise agreed between the legal owner and the beneficial owner and notified by registered letter with acknowledgment of receipt sent to the Company.
5. 2004/25/EC, Article 10(1)(h) The rules governing the appointment and replacement
of board members and the amendment of the articles of association.
Appointment/Replacement of Board Members
Article 16
Appointment. The Board of Directors is comprised of three (3) members, including the Company‟s Chairman who is a legal member.
The members of the Board of Directors are chosen by the shareholders from individuals or legal entities, who may be shareholders or non-shareholders, and who fully meet the conditions of good character, qualifications and professional experience.
The majority of the members of the Board of Directors must be suitably qualified in the field of financial services, and at least one member of the Board of Directors must have extensive knowledge and experience of structured financial products at the highest level.
NO. DIRECTIVE &
ARTICLE NO. ARTICLE WORDING PROVISION FROM CONSTITUTIONAL DOCUMENTS
Term of office. The Members of the Board of Directors are appointed pursuant to a collective decision of the shareholders for a term of office of five (5) years with effect from the date of the shareholders‟ collective decision relating thereto. Their offices shall come to an end, except in the event of dismissal, death, incapacity or early resignation, on the date of the shareholders‟ collective annual decision voting on the financial statements for the previous year. In the event of resignation, death, incapacity or dismissal during the course of the financial year of one or both directors, the Chairman must either convene, within one month of such an event, a special general meeting to arrange their replacement or he must arrange for them to be replaced temporarily until the date of the next annual general meeting of shareholders voting on the financial statements for the previous year, at the end of which one or two new directors shall be appointed pursuant to a collective decision of the shareholders.
The members of the Board of Directors who are individuals may have an employment contract with the Company, provided that it does not prevent them performing their role properly. The members of the Board of Directors that are legal entities shall be represented by their legal representatives or any duly authorised individual.
The members of the Board of Directors shall be expressly mentioned in the Company‟s registration document “K bis”.
Dismissal. The members of the Board of Directors, whether individuals or legal entities, may be dismissed at any time at will. The decision relating to dismissal shall be taken pursuant to a collective decision of the shareholders. Dismissal shall not give any right to compensation.
Amendment of Articles of Association
Article 20(1)(c) provides that amendments to the Articles of Association “must be carried out pursuant to a collective decision by the shareholders”.
6. 2004/25/EC, Article 10(1)(i) The powers of board members, and in particular the power to issue or buy back shares.
Article 16
Role. The Company‟s collegial management body is the Board of Directors, whose specific role is to ensure:
a) that the company is managed properly and prudently;
b) that the credit rating activities are independent, in particular, of all political and economic influences or restrictions; c) that conflicts of interest are adequately identified, managed and disclosed;
d) and that the Company complies with the requirements of the Regulation of the European Parliament and of the Council of 16 September 2009 on credit rating agencies.
For the proper performance of this role, the Board of Directors has extensive powers of investigation, which it may rely on and exercise in all circumstances vis-à-vis the Chairman. The Board of Directors may consequently put written questions to the Chairman, who must provide a written reply within one month. A report by the Board of Directors setting forth its recommendations relating to the Board of Directors‟ role as defined hereinabove may be attached to the Chairman's Report which is presented to the Shareholders‟ Meeting.
Lastly, the Board of Directors is responsible for appointing the Chief Executive Officer.
Article 17
Powers. The Chairman shall represent the Company in its relations with third parties for which he shall enjoy the broadest powers to act in all circumstances on behalf of the Company within the scope of the corporate object.
