Regulation of the activities of Credit Rating Agencies ("CRAs") in Israel is fairly new, with the first piece of legislation specifically regulating CRAs being enacted in March 2014 in the form of the Regulation of Activities of Credit Rating Companies Law, 2014 ("the CRAs Law").
The legislative process which started with the enactment of the CRAs Law was recently completed with the passing of the Regulation of Activities of Credit Rating Companies Regulations (2014) ("the Regulations") with both the CRAs Law and the Regulations to become effective in April 2015. The Regulations introduce extensive disclosure requirements concerning the activities of CRAs. As of April 2015, CRA's will be required to make periodic and sometimes even immediate reports to the public in Israel and the Israeli Securities Authority ("the ISA"). For example, from that date, CRAs will need to disclose every rating they make (other than ratings not intended to be made available to the public or ratings of private companies) together with material information regarding the basis for the rating, extreme scenarios reviewed in the context of the rating, and the possibility of changing this rating in the future. The CRAs may also need to disclose the methods of evaluation used to create ratings. Immediate reports will need to be filed, for example, if a CRA decides to cease rating a company or if it discovers an error in the rating. CRAs would also need to disclose information regarding their main clients, including information about other services which these clients receive from the CRA.
In addition to the disclosure requirements described above, the Regulations also require CRAs to maintain a website in Hebrew, which will be open to the public, free of charge. The website must contain details regarding the information which the CRAs are required to disclose to the public, as well as certain general information. Such general information would include information regarding conflicts of interest, information regarding the fees charged by the CRA and the way they are calculated and information regarding the controlling shareholders of the CRA. Although the website must be in Hebrew, the ISA may permit a CRA to publish some of the information in English. Further, the Regulations also impose certain record-keeping and internal auditing requirements which CRAs are required to implement.
With the completion of the legislative process, the rating process in Israel is expected to become more reliable and transparent and provide better protection for investors, similar to that which currently exists in other western capital markets.