Canada: Canadian Regulators Adopt New Requirements For Credit Rating Agencies

On March 9, the Canadian Securities Administrators (CSA) published a notice of the adoption of National Instrument 25-101 Designated Rating Organizations along with related consequential amendments.

The Instrument sets out relevant filing, disclosure, governance and other requirements applicable to a "designated rating organizations". The "designation" requirement or trigger is set out (or will be set out) in securities legislation. The result is that a credit rating organization (CRO) will be required to apply to be a "designated rating organization" (DRO) in order for its credit ratings to be used to satisfy securities law requirements that require a credit rating to be given by a "designated rating organization."

NI 25-101 provides the governance framework for DROs but there is, at the current time, no requirement to for credit ratings to be given by DROs – this is something the regulators will implement in the future. There will also be no change to the Canadian framework that exempts CROs from the civil liability provisions of securities legislation. The consequential amendments do, however, impact the disclosure required in a short or long form prospectus (including investment fund prospectus) as well as annual information forms (AIFs).

The Instrument and all consequential amendments come into force April 20, 2012. In the case of the prospectus disclosure (long form, investment fund and short form) the changes apply where the preliminary prospectus is filed on or after April 20, 2012. The changes to the disclosure required in an AIF apply for disclosure in respect of financial years ending on or after April 20, 2012.

The Instrument

The Instrument sets out the relevant filing, disclosure, governance and other requirements applicable to a "designated rating organization". The Instrument includes the concept of a "DRO affiliate" and allows for a DRO to identify "DRO affiliates" in order to address the fact that a rating may be issued by either the DRO itself or a DRO affiliate.


A DRO must apply for designation by filing a Form 25-101F1 (although an NRSRO or "nationally recognized statistical rating organization", as defined in the Securities and Exchange Act of 1934may file its most recent form NRSRO as filed with the SEC). Any foreign CRO that applies to be a DRO must also file a Form 25-101F2 (designating an agent for service of process in Canada), as well as in respect of any "DRO affiliate" that does not have an office in Canada. A DRO is required to make an annual filing within 90 days of its year end, and promptly file any amendments to the information filed if it is materially inaccurate. The agent for service of process must remain in place for six years after the DRO has ceased to be a DRO or an DRO affiliate has ceased to be such.


The Instrument also imposes a number of requirements aimed at the independence and integrity of the ratings process.

Board of Directors

The Instrument requires that a DRO, or its DRO affiliate that is its parent, have a board of directors and sets out minimum composition and independence requirements for the board.

Code of Conduct

A DRO must establish, maintain and comply with a code of conduct that complies with Appendix "A" to the Instrument. A copy of the code must be posted prominently on its website and any amendments must be posted within five business days of the amendment coming into effect. The code of conduct must address, among other things:

  • Quality and integrity of ratings process,
  • Independence and conflicts of interest, and
  • Responsibilities to the investing public and issuers.

The Code must also specify that it must not be waived.

Compliance Officer

A DRO is required to have a compliance officer that monitors and assesses compliance by the DRO and its employees with the code of conduct and securities legislation. The compensation of the compliance officer must not be linked to the financial performance of the DRO or its DRO affiliates and must be determined in a matter that preserves his or her independence.

Books and records

A DRO must keep books and records as prescribed, for a period of seven years in a safe location and durable form and in a manner that permits them to be furnished promptly to securities regulatory authorities on request. On this point, it should be noted that the OSC will have access to the books and records of both a DRO and DRO affiliate.

Consequential Amendments

Impact on "Approved" ratings

A number of Canadian securities law rules include the concept of an "approved credit rating" or "approved rating organization". Such "approved credit rating organizations" currently include Dominion Bond Rating Service Limited, Fitch Ratings, Moody's Investors Service, Standard & Poor's and any of their respective successors. None of these entities have ever been required to apply to be "approved" or "designated." The adoption of the Instrument will have no impact on these, at this time, as these definitions are not proposed to be amended.

The regulators have stated in their notice that following the implementation of the Instrument and the application for designation by interested CROs, they propose to make further consequential amendments to, among other things, replace existing references to approved rating organizations and approved credit rating organizations with "designated rating organization". Similar changes will also be made to the term "approved rating".

Civil Liability

Currently under NI 41-101, an issuer is generally required to file the "consent" of any expert whose statement or opinion is included in the prospectus and any such expert who has filed a consent is subject to civil liability for "misrepresentations" under securities legislation. CROs, however, are exempt from having to consent and the CSA have decided not to make any changes to the exemption.

In the U.S., the Dodd-Frank Wall Street Reform and Consumer Protection Act repealed a similar exemption that exempted an NRSRO from having to provide a consent if its ratings were included in a registration statement. Since the repeal of the U.S. exemption, NRSROs have refused to provide consent to their ratings being included in a registration statement, and the SEC has had to backtrack somewhat. Other jurisdictions have also faced similar problems.

The CSA are not currently proposing such changes because they do not think that the benefits of subjecting designated rating organizations to expert liability in Canada would outweigh the potential costs and have reiterated that, in Canada, the prospectuses and annual information forms must disclose if a credit rating has been sought or if the issuer is aware that one has or will be issued.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.