The draft law “On Rating Activities” has been approved by the Mazhilis in the first reading

The draft law “On Rating Activities” has been approved by the Mazhilis in the first reading

The draft laws “On Rating Activities” and “On Amendments to Certain Legislative Acts of the Republic of Kazakhstan on Issues of Rating Activities” were considered in the first reading at the Mazhilis of Parliament.
The draft laws were developed in implementation of the Concept for the Development of the Financial Sector of the Republic of Kazakhstan until 2030, approved by the Presidential Decree dated September 26, 2022.
“The new law, for the first time, establishes the legal framework for regulating the activities of credit rating agencies in Kazakhstan, defining their status, operating conditions, and requirements for independence, transparency, and accountability,” said Madina Abylkasymova, Chairperson of the Agency, speaking at the plenary session of the Mazhilis.
Credit ratings are widely used by investors, banks, and financial regulators in assessing credit risk and making investment decisions. At the same time, Kazakhstan currently lacks a national rating system and a legal framework. Ratings are mainly obtained by financial institutions and large businesses.
“The creation of a national rating system will facilitate access for SMEs to the capital market. This will help reduce borrowing costs, decrease information asymmetry, and improve issuer transparency,” Ms. Abylkasymova noted.
An institutional market model is being introduced, providing for three types of credit rating agencies. First, the establishment of a Kazakhstani rating agency as an independent institution for national rating assessment. Its shareholders will include the National Bank, an international rating agency, and financial institutions. The participation of the National Bank will ensure financial stability and foster trust in the financial market. Second, international rating agencies.
These include Standard & Poor’s, Moody’s, Fitch, and other rating agencies recognized by five OECD countries. At the same time, the document establishes a full cycle of regulation and supervision over the activities of credit rating agencies. The Agency is granted powers to recognize, monitor, and withdraw recognition of international and foreign rating agencies, as well as to oversee compliance with rating activity legislation. To enter the market, qualification requirements are established for international and foreign rating agencies, including at least five years of experience, sufficient capital levels, verified methodologies, and institutional independence. For the Kazakhstani rating agency, requirements for the minimum amount of authorized and equity capital will be established at the subordinate regulatory level. It is expected that the authorized capital will amount to approximately 10 billion tenge, in line with the practices of national rating agencies in other countries. Qualification requirements are also established for senior management, including education, work experience, and an impeccable business reputation.

The Kazakhstani rating agency will be required to provide the regulator with information about its activities, including data on ratings, methodologies, and historical statistics. Requirements are also set for internal control and risk management systems.
The Agency is empowered to conduct inspections and apply supervisory measures. The draft law also formalizes the regulation of rating methodologies as a key element of rating activities. “Rating activities are carried out exclusively on the basis of approved methodologies. Requirements are established for these methodologies. They must ensure a comprehensive assessment of creditworthiness, take into account all key risk factors, and be comparable and verifiable based on historical data,” the head of the regulator уточнила.
Additionally, a requirement is introduced for the regular updating of methodologies at least once a year. In case of identified errors, there is an obligation to disclose them. At the same time, the draft law introduces measures aimed at ensuring the institutional and operational independence of rating agencies.

Requirements are established for the existence of internal policies to identify and manage conflicts of interest. A clear separation between rating activities and other types of activities is introduced, along with a prohibition on the provision of consulting services. To ensure the independence of ratings, requirements are introduced for rating analysts.
Their remuneration must not depend on the financial performance or revenues of clients. Mandatory rotation of analysts is introduced.
Restrictions on affiliations are also established, including a prohibition on owning financial instruments of rated entities.
Requirements are set for corporate governance and ownership structure. A limit is introduced on shareholding in the capital of a Kazakhstani rating agency at no more than 10 percent, along with enhanced requirements for the board of directors — at least half must be independent directors. An important innovation of the draft law is the establishment of information disclosure standards for rating agencies.
All rating agencies are required to publish, in open access on their websites, their methodologies, pricing policies, and existing conflicts of interest. A requirement is introduced to publish historical data on default rates by ratings.
Annually, agencies will be required to disclose a transparency report, including the structure of beneficial ownership and the results of internal control. The draft law consists of 7 chapters and 30 articles and establishes a comprehensive model of state regulation and supervision of rating activities. A related draft law introduces amendments to 3 codes and 18 laws.
“The main objective of regulating rating activities is to ensure the protection of the rights and legitimate interests of rating users, as well as the transparency and independence of credit rating agencies,” the head of the regulator noted.
 

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