Report by the Director of ARDFM’s Securities Market Department at a Briefing at the Central Communications Service

Today, rating services in the financial sector play a key role in assessing the reliability of companies and financial instruments. These services help investors make informed decisions, regulators ensure transparency in the market, and businesses raise financial resources on favorable terms.

According to various estimates, share of the international rating agencies in the global rating services market ranges from 90 to 95%. A similar picture is reported in Kazakhstan, thus, according to the official websites of international rating agencies, as of Q4 2024, 75 Kazakhstan’s companies had public credit ratings: 25 from Moody's Investors Service, 42 from Fitch Ratings, 34 from Standard & Poor's, while the number of ratings was 101 (large companies have ratings from several international rating agencies). Thus, the rating services market in Kazakhstan is currently almost entirely represented by international rating agencies with shares of: Fitch Ratings – 41.6%, Moody's – 24.7%, S&P – 33.7%. The Herfindahl-Hirschman Index is 3462, which classifies this market as highly concentrated.

Thus, today the rating services market in Kazakhstan is almost entirely covered by three international rating agencies. They account for 25%, 42% and 34%, respectively. This indicates a high concentration of the rating services market in our country.

It is necessary to indicate that in the current situation there are several key problems that hamper development of the rating services market of Kazakhstan. In particular, the following aspects can be highlighted:

• Absence of regulation of the activities of credit rating agencies;
• Absence of legislative conditions for creation and operation of local rating agencies;
• High cost and limited availability of rating services for Kazakhstan’s companies, especially for medium-sized enterprises.

In this regard, the Agency has developed a draft law "On Credit Rating Agencies".

The draft law has been developed for implementation of the 2030 Concept of Development of the Financial Sector and is designed to create conditions for development of an institution of independent rating assessment of credit risks, which will reduce dependence on international rating agencies, will facilitate expansion of business financing mechanisms through stock market instruments and development of independent ESG assessment instruments.

International Practice

The draft law has been developed based on recommendations of leading international organizations, such as IOSCO (International Organization of Securities Commissions). It defines key principles of professional conduct for credit rating agencies and sets goals of regulation of the securities market, in particular, Principle 22 recommends introduction of regulation of credit rating agencies.

The draft law also takes into account requirements of the Basel Committee on Banking Supervision, which defines qualification requirements for credit risk assessment institutions within Basel II and Basel III. Additionally, the European Union directives were analyzed, for example, Directive 1060/2009, which is intended to regulate credit rating agencies.

The draft law will be designed to ensure the following key principles of credit rating agencies recommended by these international institutions: objectivity, independence, transparency, disclosure of information, sufficiency of resources, ongoing supervision and accountability of rating agencies.

Main provisions of the draft law

In this context, the offered draft law provides for a comprehensive approach to regulation of the credit rating agencies. It is based on several key provisions:

First, a clear classification of CRAs is established, which includes three categories:

1. International rating agencies – agencies recognized by financial regulators of the OECD countries and operating in several jurisdictions.
2. Foreign rating agencies – agencies registered outside of Kazakhstan and recognized by our regulator.
3. Local rating agencies (LRA) – organizations registered in Kazakhstan as a joint stock company, where the National Bank of the Republic of Kazakhstan is one of its shareholders.

Secondly, functions and powers of the ADRFM are fixed. These include:

- Establishment of procedures for recognition of international, foreign rating agencies;

- Supervision of their activities and control over compliance with established standards;

- Regulation of mechanisms for management of conflicts of interest;

- Definition of requirements for disclosure of information and corporate governance.

Expected results and effect from implementation of the law

Thus, adoption of this draft law will entail a number of positive changes. In particular, several key results can be highlighted:

1. Establishment of a competitive rating agency of Kazakhstan that will be able to work on an equal footing with international players.
2. Increased availability of rating services for Kazakhstan’s companies, including small and medium businesses.
3. Development of the market of corporate bonds and securitized assets, which will allow businesses to receive financing on more favorable terms.
4. Ensuring protection for unqualified investors, which will consolidate confidence in the financial market.
5. Reduction of dependence on international rating agencies, which will increase autonomy of the national financial system.

In summary, it is safe to say that implementation of this draft law will be a milestone in development of the financial sector of Kazakhstan. It will allow formation of a transparent and effective market for credit rating services that meets international standards and needs of the national economy.