ISLAMABAD, March 1: The Securities and Exchange Commission of Pakistan (SECP) has issued a detailed code of conduct for credit rating companies in order to put an end to the ongoing individual procedures followed by various companies and improve the rating process in the country.

The code, aimed at ensuring the credibility of ratings, has been developed in line with international best practices and ethical requirements for credit rating, stated an official announcement issued here on Monday.

Credit rating companies have been operating in Pakistan since 1996-97. They have played a useful role in fostering the investors' confidence and promoting the development of capital market in the country. But up till now, the credit rating companies were following their individual procedures for the purpose of rating.

A need was felt to standardize these procedures and the code of conduct, developed by the SECP, would provide a transparent framework for credit rating in this regard, the announcement added.

According to the rules, the credit rating companies were required to give due consideration to factors such as objectivity, independence, transparency and proper disclosure during the rating process.

Certain provisions are specified to be incorporated in the rating agreement with the client, which would clearly stipulate the responsibilities of both parties involved.

The rating companies are required to develop and maintain a website on which press releases and rating reports are to be kept for at least three years. The companies will have to establish and document policies and procedures to ensure that no conflict of interest arises that could jeopardize the objectivity of ratings.

According to the code of conduct, the credit rating companies are required to develop policies to ensure confidentiality of information obtained by them from the rated entities.

The companies are required not to take any part in creation of false market and passing of price sensitive information to any players in the capital market. The companies must acquire and maintain membership of the Association of Credit Rating Agencies in Asia (ACRAA) and follow the best practices guidelines issued by ACRAA from time to time.