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The Committee of European Securities Regulators THE COMMITTEE OF EUROPEAN SECURITIES REGULATORS Date: 6 July 2006 Ref: 06-220 Annexes Update on CESR’s dialogue with Credit Rating Agencies to review how the IOSCO code of conduct is being implemented Annexes Page DRBS Report on Compliance to the DBRS Code of Conduct 2 Fitch Ratings Code of Conduct 20 The Fitch Code of Conduct – One year on 33 Moody’s Code of Professional Conduct 37 Report on the Code of Professional Conduct 53 Standard and Poor’s Code of Conduct 87 Report of Implementation of Standard and Poor’s Code of Conduct 103 IOSCO Codes vs Standard and Poor’s Code of Condu 120 11-13 avenue de Friedland - 75008 PARIS - FRANCE - Tel.: +33.(0).1.58.36.43.21 - Fax: +33.(0).1.58.36.43.30 Web site: www.cesr.eu 06may_codeofconduct 5/9/06 1:48 PM Page 1 Dominion Bond Rating Service Report on Compliance to the DBRS Code of Conduct May 2006 Toronto Corporate Office 200 King Street West, Suite 1304 Toronto, ON M5H 3T4 Canada Tel. (416) 593-5577 New York 55 Broadway New York, New York 10006 U.S.A. Tel. (212) 806-3277 Chicago 101 North Wacker Drive, Suite 100 Chicago, IL 60606 U.S.A. Tel. (312) 332-3429 London 75 Cannon Street London, EC4N 5BN United Kingdom Tel. 44 (0)207 556 7024 Frankfurt Trianon Tower Mainzer Landstrasse 16 60325 Frankfurt, Germany Tel. 49 (0)69 9716 8144 Paris 27 Avenue de l'Opéra 75001 Paris, France Tel. 33 (0)1 70 38 52 14 Dominion Bond Rating Service www.dbrs.com Comprehensive • Credible • Consistent ©2006 Dominion Bond Rating Service. All rights reserved. 06may_codeofconduct 5/9/06 1:48 PM Page 2 contact info Mary Keogh Managing Director, Policy Tel. 416-597-3614 [email protected] Kent Wideman Group Managing Director, Policy & Rating Committee Tel. 416-597-3610 [email protected] Dominion Bond Rating Service (DBRS) is a full-service credit rating agency established in 1976. Privately owned and operated without affiliation to any financial institution, DBRS is respected for its independent, third-party evaluations of corporate and government issues, spanning North America, Europe and Asia. DBRS's extensive coverage of securitizations and structured finance transactions solidifies our standing as a leading provider of comprehensive, in-depth credit analysis. All DBRS ratings and research are available in hard-copy format and electronically on Bloomberg and at DBRS.com, our lead delivery tool for organized, web-based, up-to-the-minute information. We remain committed to continuously refining our expertise in the analysis of credit quality and are dedicated to maintaining objective and credible opinions within the global financial marketplace. TABLE OF CONTENTS EXECUTIVE SUMMARY...........................................................................................2 1. QUALITY AND INTEGRITY OF THE RATING PROCESS ....................................3 A. Quality of the Rating Process........................................................................3 B. Monitoring and Updating...............................................................................5 C. Integrity of the Rating Process.....................................................................5 2. DBRS INDEPENDENCE AND AVOIDANCE OF CONFLICTS OF INTEREST ........7 A. General ...........................................................................................................7 B. DBRS Procedures and Policies ......................................................................8 C. DBRS Analyst and Employee Independence ................................................9 3. DBRS RESPONSIBILITIES TO THE INVESTING PUBLIC AND ISSUERS........10 A. Transparency and Timeliness of Ratings Disclosure .................................10 B. The Treatment of Confidential Information...............................................12 4. ENFORCEMENT AND DISCLOSURE OF THE CODE OF CONDUCT AND COMMUNICATION WITH MARKET PARTICIPANTS ...........................................13 Appendix...............................................................................................................14 Definitions ........................................................................................................14 EXECUTIVE SUMMARY In February 2006, Dominion Bond Rating Service ("DBRS") published its Code of Conduct ("Code") that reflects a summary of the extensive range of policies, procedures, and internal controls that DBRS has implemented and currently follows to ensure the objectivity and integrity of its ratings and the transparency of its operations1. This Code also reflects DBRS's adherence to the International Organization of Securities Commissions (“IOSCO”) Code of Conduct Fundamentals for Credit Rating Agencies ("IOSCO Code"). The Code is substantially similar to the IOSCO Code except in certain limited respects, where provisions of the IOSCO Code have been modified to adapt to DBRS's particular business. In each case, DBRS believes that the modified provisions still achieve the objectives contained in the IOSCO Code and the principles that underlie it. This Report on Compliance with the Code (“Report”) provides an overview of how DBRS has continued to follow and comply with its Code. The Report has been formatted to include the detailed provisions of the Code, followed by summary comments on DBRS’s compliance with these provisions that provide additional detail and highlight any significant changes in related policies, procedures, and internal controls since the Code’s publication. This Report also highlights any significant deviations from the Code. DBRS recently completed its annual review of compliance as required by the U.S. Securities Exchange Commission (“SEC”) Investment Advisers Act of 1940 Rule 206(4)-7 for the period October 2004 to April 6, 2006 (“Review”). DBRS’s Chief Compliance Officer (CCO) undertook an assessment on a firm-wide basis of the range of DBRS’s regulatory and compliance policies that underpin the Code. This Review provides support for the enclosed comments. DBRS believes that, at present, its regulatory compliance policies and procedures sufficiently address the risks related to DBRS’s regulated activities. DBRS has offices in London, Paris, Frankfurt, New York, Chicago, and Toronto and each of these locations adheres to firm-wide policies and practices to ensure consistent application of DBRS’s core rating methodologies and governance practices, and to ensure the ratings process is not compromised by conflicts of interest, misuses of Confidential Information, and other undue influences. DBRS’s policies are generally drafted to have firm-wide application. On occasion, the implementation of a firm-wide policy may be tailored to a specific jurisdiction due to local legal and/or regulatory requirements. DBRS believes these variations are consistent with the principles of the IOSCO Code. The need to implement new policies and/or changes to existing policies and procedures are monitored on an ongoing basis to ensure global regulatory requirements and professional standards are met, and that appropriate business practices are adopted. DBRS has in place a Policy Committee consisting of senior management with accountability for ensuring appropriate policy coverage as well as policy design across the firm. Further, DBRS’s Internal Audit function will provide senior management with independent assurance that policies, procedures, and internal controls are designed effectively and operating as intended on a consistent basis. DBRS believes the publication of this Report assists in promoting the transparency that underlies DBRS’s business practices. An annual Report on DBRS’s compliance with its Code will be prepared. Both the Code and the Report can be accessed at no charge on DBRS's website, www.dbrs.com. This Report has used certain standard terms which have been capitalized and defined in the attached Appendix. 1 Among the extensive range of policies that this Code of Conduct reflects is an internal DBRS Code of Ethics that outlines specific detailed standards of conduct, requirements, and procedures applicable to DBRS Staff. Report on Compliance to the DBRS Code of Conduct 2 DETAILED REPORT 1. QUALITY AND INTEGRITY OF THE RATING PROCESS A. Quality of the Rating Process 1.1 DBRS’s ratings are formed and disseminated based on established rating philosophies, methodologies, and processes. DBRS’s rating methodologies are published on www.dbrs.com and cover all rated industry sectors including corporate Issuers, financial institutions, public finance entities (collectively referred to as “Corporate”), and structured finance transactions (“Structured Finance”). DBRS’s rating processes include having a Rating Committee ensure that all relevant information is factored in the rating analysis and that ratings are comparable across a wide range of different industries and countries. 1.2 DBRS maintains rigorous and systematic rating methodologies and procedures which are monitored by DBRS’s Policy Committee to ensure they are current and comprehensive. In April 2005, DBRS published a Corporate Default Study on the historical default performance of DBRS-rated corporate bond Issuers from 1977 to 2004. This study indicates that DBRS ratings are strongly correlated to historical default experience. 1.3 In assessing an Issuer’s creditworthiness, Analysts are required to use DBRS’s established rating methodologies. Analysts must apply these rating methodologies consistently and DBRS’s Rating Committee monitors their consistent application within and across industries. 1.4 DBRS ratings are determined by a Rating Committee for both Corporate
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