The Securities and Exchange Commission (SEC) is revamping the rules governing credit rating agencies as it proposes tougher governance, disclosure, and independence standards to strengthen investor confidence.

The regulator said on Wednesday that it is seeking public comment on a draft memorandum circular amending the 2015 implementing rules and regulations of the Securities Regulation Code, which sets out the revised framework for credit rating agencies.

The revised rules expand regulatory coverage beyond corporate bonds to include commercial paper, structured products, sukuk instruments, covered bonds, and sustainability-linked instruments.

They also raise accreditation standards by requiring stronger governance, operational controls, and documentation, alongside a detailed business plan, shareholder disclosures, and proof of compliance with board independence requirements.

To strengthen the financial capacity of rating firms, the SEC proposes a minimum capital requirement of P50 million upon accreditation, rising to P70 million after three years.

“A deeper corporate bond market depends on the credibility of the institutions that support it. Strengthening the oversight of credit rating agencies complements the Commission’s broader market development agenda by reinforcing the integrity and independence of the credit rating process. In turn, this helps give investors greater confidence in the ratings they rely on and creates the conditions for broader market participation,” SEC Chairperson Francis Lim said.

The draft also introduces safeguards to preserve the independence of credit ratings. Rating agencies would be required to have a majority of independent directors, including the chairperson, while business development functions must be kept separate from analytical teams to minimize conflicts of interest.

Lead analysts would also be limited to rating the same entity for four consecutive years, followed by a two-year cooling-off period.

To improve transparency, credit rating agencies would have to publish annual transparency reports detailing their governance, staffing, remuneration policies, and compliance framework.

They would also be required to disclose historical default rates and rating transition matrices, allowing investors to better assess the reliability of their credit ratings.

The regulator said the proposal aligns Philippine regulations with internationally recognized standards of the International Organization of Securities Commissions while tightening oversight of firms whose credit ratings are widely used by investors to assess debt securities.