The Pakistan Credit Rating Agency Limited

POLICY

ROTATION OF ANALYST

POLICY Page 1 of 2

December 2018 www.pacra.com

1 INTRODUCTION Capitalized terms used herein are defined in Annexure I “Defined Terms”

1.1 Ratings are assigned by PACRA Rating Committee (RC) and not by any

individual Rating Analyst.

1.2 Rating Analysts (by whatever name called) are part of rating teams. At times, a

single member rating team may be assigned to undertake the Rating of a Client.

1.3 Rating Analysts shall submit their Initial Analysis Reports along with the

Proposed Ratings to the RC.

2 ROTATION

MECHANISM

2.1 For each outstanding rating, PACRA will rotate its Rating Analysts so that:

Rating Analysts shall be rotated after a maximum continuous Time on Period of

seven (7) years

3 COOLING-OFF

PERIOD

3.1 The Cooling-off Period begins the day after the last day of the Time on Period:

Rating Analysts shall observe a Cooling-off Period of a continuous one-and-a-

half (1.5) years or three complete Rating Reviews (whichever is shorter). The

Rating Review is considered complete when public dissemination takes place.

After the Cooling-off Period is over, the Rating Analyst may be assigned to

undertake the Rating of the same Client / Issuer.

4 TASKS 4.1 The management information technology (MIT) department generates and

maintains in record management information system (MIS) reports (that can be

generated for any given date) as per following specifications:

Report Title Rotation of Analyst

Report Design

Rating Analyst

(Name) Client (Name)

Start

(Date)

End

(Date)

Time on Period

(Duration)

5 POLICY

ADMINISTRATION

5.1 Interpretation: Competent Authority is responsible for interpreting and

applying the Policy to specific situations when questions arise. Competent Authority is

designated on a case-to-case basis based on relevant competency.

5.2 Review: This Policy is subject to review as follows:

Reviewer Scope Frequency Regulation

Competent

Authority

Appropriateness

& sufficiency Annual Chapter III | 11-B-(k)

Internal Audit Actual vs. Policy Annual Chapter III | 11-B-(l)

Expert Comprehensive

Every

three (3)

years

Chapter III | 11-A-(b)

5.3 Policy Approval: This Policy is required to be approved by the Board of

The Pakistan Credit Rating Agency Limited

POLICY

ROTATION OF ANALYST

POLICY Page 2 of 2

December 2018 www.pacra.com

Directors.

5.4 Investigations of Suspected Violations: All reported violations shall be

promptly investigated and treated confidentially to the extent reasonably possible.

5.5 Disciplinary Protocol: Compliance with all Codes of Conduct and PACRA

Policies, including this Policy, is a condition for employment. Compliance with the

Codes and PACRA Policies shall be monitored on periodic basis:

Those who come within the bounds of this Policy shall cooperate fully to

provide truthful, accurate information

The current version of this Policy is available on the website:

www.pacra.com

6 REGULATORY

FRAMEWORK

6.1 PACRA’s compliance to SECP’s regulatory framework in terms of Rotation of

Analyst Policy is as follows:

PACRA’s Compliance for Rotation of Analyst Policy

SECP’s Credit Rating Companies (CRC) Regulations, 2016

SECP Regulation Policy Section

Chap. III; 11-A-(d): A CRC shall ensure that its analysts

and all its relevant officers maintain sufficiently high level

of analytical and monitoring standards and possess the

requisite skill and expertise. A credit rating company must

consider the number of entities/instrument/issues that can

be effectively covered by a particular analyst, taking into

account a broad spectrum of variables, including the size

and complexity of the particular issue and the experience

and expertise of the analyst;

Summary | Purpose

Chap. III; 11-A-(i): A CRC shall considering the

adequacy of its staffing strength, use its best endeavor to

subject its rating analysts to an appropriate rotation

mechanism that provides for gradual change in rating

teams;

Section 2 (Rotation Mechanism)

& Section 3 (Cooling-off

Period)

Chap. III; 11-B-(j): A credit rating company shall ensure

that all policies are duly approved by its board of directors

and shall define clear lines of responsibility, authority and

tasks that are adequately assigned to employees;

Cover Page & Section 4 (Tasks)

Annexure H-(vii): List of Policies to be developed &

disclosed by a credit rating company / agency | Policy for

rotation of analyst

Policy developed & disclosed on

website

The Pakistan Credit Rating Agency Limited

ANNEXURE I | ROTATION OF ANALYST

ANNEXURE Page 1 of 2

December 2018 www.pacra.com

DEFINED TERMS

Client An entity / Issuer, whose rating assignment is to be undertaken, having signed a Rating

Agreement with PACRA

Codes of Conduct Sets of Standards (Do’s & Don’ts) governing day-to-day conduct

Competent Authority A designated authority considered to possess the requisite expertise / knowledge

Conflict of Interest

(COI)

Conflict of interest (COI): A situation wherein an individual / organization, upholding

a position of trust / fiduciary responsibility, encounters a competing personal /

professional interest that has the potential to make it difficult for such individual /

organization to fulfill its position of trust / fiduciary responsibility objectively and

impartially:

i Potential COI: A COI that exists due to inherent aspects in a business model

despite institution of prudent systems and controls to manage such COI

ii Actual COI: A COI that comes into existence as a result of a failure in systems

and controls instituted to manage a potential COI

Cooling-off period

Cooling-off period refers to a period in which the relevant Rating (and all associated

activities in its rating process) / Issuer remains off-limits for the Rating Analyst rotated

out of such rating

Policies PACRA’s official, documented Statement on its business, conduct and processes

Proposed Rating, also

termed “Initial

indicative rating”

The rating that is proposed to the RC by the rating team.

This may also be called “Initial indicative rating” as per the terminology used by SECP

in Clause 11-C-(t) of Credit Rating Companies Regulations, 2016

Rating

“An opinion regarding securities or a person expressed in the form of standard symbols

or in any other standardized manner, assigned by a credit rating company and includes

credit rating.”

Credit Rating Companies Regulations, 2016, Regulation Chapter I, 2-1-(i)

Rating Analyst

“Analyst”

“An employee of the credit rating company who performs analytical functions that are

necessary for the issuing or monitoring of a credit rating or participates in determining

credit ratings”

Credit Rating Companies Regulations, 2016, Regulation Annexure F, p 48

Rating Committee

(RC), RC Members

Rating Committee: PACRA Rating Committee (RC) is a forum whereby the rating

proposed by the Rating Team undergoes deliberation culminating in a decision as to

what the final rating would be. RC is core to the finalization of rating opinion. Rating

decisions are taken exclusively by the RC and not by any individual and are completely

independent of any influence.

RC Members: PACRA RC is structured to include both Internal and External RC

Members:

Internal RC Member: A PACRA Employee who has been formally designated

in the position. He may have other responsibilities / functions in PACRA.

External RC Member: “Any person who has been appointed by credit rating

The Pakistan Credit Rating Agency Limited

ANNEXURE I | ROTATION OF ANALYST

ANNEXURE Page 2 of 2

December 2018 www.pacra.com

company as member of its rating committee and has no direct or indirect

association with the credit rating company or any of its directors and sponsors.”

All RC Members need to be approved by BoD | Credit Rating Companies

Regulations, 2016, Regulation Chapter III, 11-C-(e)

All External RC Members need to be approved by the Securities and Exchange

Commission of Pakistan (SECP), in addition | Credit Rating Companies

Regulations, 2016, Regulation Chapter III, 11-C-(g)

Rating Review The process whereby a rating is reviewed and rating action announced / disseminated

Time on Period

The period of time beginning from the date a Rating Analyst is assigned to a Rating until

the date the same Rating Analyst ceases to be involved in the rating process of such

Rating