The Appeal Seat has supported the Securities and Stock Exchange Committee in Pakistan (SECP) a penalty of 800,000 rupees imposed on the VIS Limited Credit Company (previously JCR-VIS Limited) for multiple violations of the rules of credit rating companies, 2016. The decision enhances the stability of the regulator to ensure interest in the field of financial rating.
Credit agencies (CRAS) assess the creditworthiness of companies, financial tools and even governments, and assist investors and lenders in measuring the risks associated with lending or investing in an entity. These agencies set the classifications based on financial stability, the ability to pay debts, and market risk. High classifications indicate low risk, while low classifications indicate financial instability. Investors, financial institutions and organizers rely on these classifications to make enlightened decisions.
CRAS operates under strict regulations to maintain market safety, prevent interest in conflict, and ensure that their classifications are unbiaded and based on proper financial analysis. Failure to adhere to these regulations can lead to penalties, reputation damage, and loss of credibility.
VIS’s credit rating had resumed SECP on October 16, 2019, which indicated non -compliance with various regulatory provisions, including:
- Conflict of interests in classification tasks
- Not to perform internal audits as required
- Insufficient risk management policies
- There are no indicative categories for transparency
- The lapses in preserving organizational documents
SECP appeals, after reviewing the arguments on both sides, rejected the appeal and supported the original penalty. The seat confirmed that credit rating agencies must abide by the highest standards of fairness, efficiency and transparency to maintain the investor’s confidence and the stability of the financial market.
The ruling determines a precedent for the most striking organizational organization in the Pakistani financial sector. It indicates other classification agencies that lack of compliance with regulations will not be tolerated, thus enhancing investor protection. The decision may also affect the VIS credibility, as investors and clients may view organizational violations as a red flag, which leads to a decrease in job opportunities.
Moreover, CRAS organizational scrutiny can improve internal governance, risk management and transparency, which ultimately enhances a more powerful and reliable credit industry in Pakistan.
