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.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions