2019 Transparency Report of ACRA (JSC)

“We are committed to providing the Russian rating services market with high-quality products by building up a highly professional, technologically advanced and transparent business, consistently vested with confidence by the investment community.”

The Analytical Credit Rating Agency team

The Transparency Report contains information on operations of the Analytical Credit Rating Agency from January 1, 2019 to December 31, 2019.

The Transparency Report has been prepared in accordance with requirements of Part 4, Article 13 of Federal Law No 222-FZ¹. This document is subject to publication in the Compliance section of ACRA’s website.  

¹ Federal Law No 222-FZ, dated July 13, 2015, “On the Activities of Credit Rating Agencies in the Russian Federation, On the Amendment to Article 76.1 of the Federal Law ‘On the Central Bank of the Russian Federation (Bank of Russia)’ and the invalidation of certain provisions of legal acts of the Russian Federation”.

1. About ACRA

1.1. Company Structure

Structurally, ACRA consists of the following business units:

• Analytical Unit;
• Methodology Group;
• Compliance and Internal Control Service (CICS);
• Operational Unit;
• Business Development Department;
• International Development Department;
• IT service;
• ACRA’s branch in the Astana International Financial Center (AIFC) in Kazakhstan.

The Analytical Unit includes research groups focusing on specific types of rated objects:

• Corporate Ratings Group;
• Financial Institutions Ratings Group;
• Sovereign Ratings and Macroeconomic Analysis Group;
• Sub-sovereign Ratings Group;
• Structured Finance Ratings Group;
• Project Finance Ratings Group;
• Sustainable Development Risk Assessment group;
• Islamic Finance Ratings Group.

2. Internal control

The membership of bodies that carry out internal control, procedure for their formation and powers are determined by ACRA’s Charter and must be in line with the nature and scope of ACRA’s business.

Internal control in ACRA is carried out by the following in accordance with the powers determined by ACRA’s constituent and internal documents:

• General Meeting of Shareholders;
• Board of Directors of ACRA;
• CEO (sole executive body);
• Chief and Deputy Accountant;
• CICS;
• Information Security Officer (IS Officer);
• Employee responsible for monitoring compliance with the requirements of Federal Law No. 224-FZ;
• Rating Committee;
• Methodological Committee;
• OHS specialist;
• Other structural subdivisions and employees of ACRA within their competence as per ACRA’s internal documents.

2.1.  FUNCTIONS OF INTERNAL CONTROL BODIES

General Meeting of Shareholders

- Determining the number of members in the Board of Directors, elections of its members, early termination of their powers, establishing of the amounts of remuneration and compensation paid to its members;

- Approving an organization to audit ACRA;

- Approving annual reports and annual accounting (financial) statements;

- Making decisions on the approval of related party transactions in cases stipulated by Article 83 of Federal Law No. 208-FZ “On Joint Stock Companies”;

- Making decisions on the approval of major transactions in cases stipulated by Article 79 of Federal Law No. 208-FZ “On Joint Stock Companies”;

- Approval of internal documents regulating the activities of ACRA’s bodies.

Board of Directors

- Monitoring compliance with the requirements of Federal Law No. 222-FZ and the Bank of Russia regulations adopted in accordance with it, as well as ACRA’s internal documents, including controlling the effectiveness of the methodology review function;

- Assessing the effectiveness of the system of control over the reliability of assigned credit ratings;

- Assessing the effectiveness of measures and procedures established to ensure the prevention, identification, management, and disclosure of conflicts of interest;

- Forming ACRA’s executive body (appointing the CEO), determining the term of office of the CEO, early termination of the powers of the CEO, establishing of the amounts of remuneration and compensation paid to the CEO, coordinating the CEO's positions in the management bodies of other organizations;

- Electing the Chairman of the Board of Directors and their deputies;

- Creating advisory bodies of the Board of Directors, determining their number, appointing their members, and approving the regulations governing the activities of such bodies;

- Organizing and monitoring ACRA’s internal control, including approving the CICS’s work plans and reviewing CICS performance reports;

- Identifying gaps in the functioning of bodies responsible for internal control and the adoption of measures to improve ACRA’s internal documents, as well as measures of internal control including taking into account CICS recommendations, other bodies, structural departments, and ACRA employees within their purview, by reviewing issues and making appropriate decisions at meetings of the Board of Directors;

- Approving ACRA’s internal documents in accordance with legislative requirements and ACRA’s Charter.

CEO

- Approving staff, defining the organizational structure, issuing orders and directives, sending instructions to be executed by all ACRA employees, proposing initiatives related to ACRA’s activities;

- Organizing and enforcing the decisions of ACRA’s General Meeting of Shareholders and Board of Directors;

- Submitting issues for consideration by the Board of Directors, ensuring the preparation of necessary materials, proposals, and draft decisions for the Board of Directors and General Meeting of Shareholders;

- Appointing and dismissing the head of the CICS, including the person temporarily filling this position;

- Approving ACRA’s internal documents in accordance with ACRA’s Charter.

Chief and Deputy Accountant

- Organizing the formulation and maintenance of ACRA’s accounting, tax accounting, and reporting in order for interested internal and external users to obtain complete and accurate information on the financial and economic activities and financial position of ACRA;

- Forming ACRA’s accounting policies in accordance with the legislation of the Russian Federation on accounting (including for tax purposes) based on specific conditions of activity;

- Monitoring the following:

• Legality, timeliness, and correctness of primary accounting documents used in the implementation of ACRA’s accounting, tax accounting, and reporting;
• ACRA’s compliance with the requirements of the current legislation of the Russian Federation in the field of currency transactions;
• Compliance of ACRA's business operations with the legislation of the Russian Federation;
• Timeliness and correctness of non-cash payments (domestic and international);
• Movement of property and fulfillment of ACRA’s obligations;
• Ensuring the timely transfer of taxes and fees to the federal, regional, and local budgets, insurance contributions to state non-budget social funds, and other payments made by ACRA.

- Accounting for financial, settlement, economic and other operations, the results of ACRA’s economic and financial activities, incoming cash, inventory and fixed assets, timely reflection on the accounts of transactions related to the movement of these funds and assets, and also accounting for all types of ACRA’s expenses;

- Ensuring compliance with financial and cash discipline, cost estimates, the legality of write-offs of accounting shortages, receivables, and other write-offs;

- Ensuring the timely preparation of reliable accounting, tax, statistical reports, and the submission of these reports in accordance with the established procedure to the relevant authorities;

- Ensuring the safety of accounting documents and their appropriate transfer for archival storage.

CICS

- Monitoring the compliance of ACRA and its employees with the legislative requirements of the Russian Federation, including the statutory acts of the Bank of Russia and ACRA’s internal documents, as well as monitoring regulatory risk management and conflicts of interest;

- Warning and preventing violations by ACRA and its employees of the legislative requirements of the Russian Federation, including the statutory acts of the Bank of Russia and ACRA’s internal documents, as well as preventing of conflicts of interest;

- Monitoring the compliance of ACRA and its employees with the legislative requirements of the Russian Federation, including the statutory acts of the Bank of Russia and ACRA’s internal documents;

- Preparing and submitting to the Board of Directors reports on CICS activities in accordance with the Regulation on the Compliance and Internal Control Service;

- Participating in the development of ACRA’s internal documents, which define the procedures for internal control;

- Coordinating and participating in the development of a set of measures to manage regulatory risks and other risks inherent in ACRA’s activities, and also to manage conflicts of interest;

- Participating in the review of complaints (appeals, claims) received by ACRA concerning violations by ACRA and its employees of the legislative requirements of the Russian Federation, including the statutory acts of the Bank of Russia and ACRA’s internal documents; and also systematizing information on such complaints (appeals, claims) and their consideration;

- Participating within its purview in interaction with users of credit ratings, professional associations, and the Bank of Russia;

- Improving the efficiency of control procedures;

- Developing measures to minimize risks identified as a result of internal control, as well as monitoring the implementation of these measures.

IS Officer

- Organizing and maintaining ACRA’s information security system, which is aimed at securing the confidentiality of information that ACRA receives from customers, and information obtained in the course of ACRA’s activities, including information that amounts to personal data and trade secrets;

- Identifying existing or potential information security risks to ACRA’s information assets, as well as proposing ways to minimize these risks;

- Ensuring the compliance of ACRA’s internal documents in the field of information security with the legislative requirements of the Russian Federation, statutory acts of the Bank of Russia, and orders of the FSB and FSTEC.

Official responsible for monitoring compliance with the requirements of Federal Law No. 224-FZ²

- Monitoring access to ACRA’s insider information;

- Monitoring the compilation, updating, and disclosure of ACRA’s insider information list;

- Monitoring the compliance of ACRA’s insiders with transactions involving financial instruments;

- Monitoring compliance with the procedures and terms of disclosure of ACRA’s insider information subject to disclosure in accordance with Paragraph 1 of Article 8 of Federal Law No. 224-FZ;

- Maintaining ACRA’s insider list, as well as sending notifications on the inclusion/exclusion of insiders to/from the list;

- Developing internal control rules to prevent, detect, and suppress the illegal use of insider information and/or market manipulation;

- Participating in the development of ACRA’s internal regulatory documents on countering the illegal use of insider information and/or market manipulation;

- Interacting with the Bank of Russia on issues related to countering the illegal use of insider information and/or market manipulation.

Rating Committee

The Chairperson of the Rating Committee shall perform the following internal control functions:

- Monitoring compliance with the legislation of the Russian Federation, statutory acts of the Bank of Russia, and ACRA’s internal documents when preparing and holding rating committees and documenting their decisions;

- Monitoring the correct application of methodology when performing rating actions and documenting the reasons for any deviations from the methodology should they occur;

- Monitoring the provision and review during rating committee meetings of all information and all documents needed to make a decision on the rating action as per the applied methodology and other internal documents of ACRA;

- Monitoring the avoidance of actual or potential conflicts of interest of members of the rating committee;

- Ensuring that the progress (results) of a meeting of the rating committee is (are) recorded in the minutes of the rating committee meetings;

- Informing the Head of the CICS about all violations of the requirements of the Regulation on the Rating Committee and violations of legal acts of the Russian Federation or requirements of the Bank of Russia.

Methodology Committee

The Chairman of the Methodology Committee shall have the following responsibilities in addition to those of an ordinary member of the Methodology Committee:

- Monitoring deviations from the methodology during the rating analysis and analysis of the reasons for such deviations;

- Ensuring the timely revision of the methodology in accordance with legislative requirements;

- Monitoring the compliance with the legislative requirements of the Russian Federation, statutory acts of the Bank of Russia, and ACRA’s internal documents, in the preparation and conduct of meetings of the Methodology Committee and the implementation of its resolutions;

- Ensuring the avoidance of actual or potential conflicts of interest among members of the Methodological Committee;

- Making the minutes of meetings of the Methodology Committee.

OHS Officer

- Participation in the development and monitoring of ACRA’s OHS system in accordance with state OHS regulations, the purposes and objectives of ACRA, and interstate and national OHS standards;

- Participation in determining and adjusting the development strategy of ACRA’s professional risk management system, based on monitoring changes in legislation and the best OHS practices, and taking into account the upgrade of equipment, purposes and objectives of ACRA;

- Monitoring OHS compliance by ACRA employees, carrying out activities aimed at preventing injuries and occupational diseases, and performing measures aimed at creating healthy and safe working conditions, and providing employee compensation packages for work in adverse conditions if necessary;

- Checking the condition and serviceability of personal and collective protective equipment;

- Participation in monitoring ACRA’s OHS budget execution and assessing the effectiveness thereof;

- Making proposals to improve the effectiveness of OHS measures and activities;

- Monitoring the intended use of funds allocated for OHS measures and activities.

Other units and employees of ACRA within their purview and as established by ACRA’s internal documents

The internal control system shall ensure formalization of the main processes at ACRA, including the appointment of relevant persons and units in charge.

Each ACRA employee shall be involved in the internal control as applicable to his job description.

Management bodies and all ACRA employees shall adhere to Federal Law No. 222-FZ, other regulatory acts of the Russian Federation, and the Charter and ACRA’s internal documents.

2.2. OBJECTIVES OF INTERNAL CONTROL

The primary objectives of ACRA’s Internal Control System are:

• Ensuring the credibility of assigned credit ratings and the independence of rating activities from any political and/or economic influence;
• Identifying and preventing conflicts of interest, as well as managing them;
• Ensuring the completeness, reliability, and timeliness of compiling and providing reports to internal and external users.
• Management of risks related to ACRA’s activities, including regulatory risks.
• Ensuring the effectiveness of ACRA’s activities.

2.3. OPERATION OF INTERNAL CONTROL SYSTEM BODIES

The bodies of the Internal Control System operate on the basis of the following key principles:

• Independence and impartiality

ACRA makes sure that all Internal Control System bodies are able to perform their functions without bias and without interference from third parties.

• Objectivity and ethical standards

Employees of the bodies and units that are part of the Internal Control System carry out their activities based on the Code of Ethics and Professional Conduct of ACRA and should avoid any influence that a potential conflict of interest may have on the objectivity of their professional judgment in the course of internal control implementation.

• Consistency and continuity of activities

Internal Control at ACRA is carried out on a permanent basis and covers all areas of ACRA’s activity.

• Professional competence

Upon their appointment and during their entire tenure the employees of the bodies and units that are part of the Internal Control System must comply with the qualification requirements established by Federal Law No. 222-FZ. Employees who implement internal control functions shall duly maintain their professional competence by participating in regular training and professional development courses.

3. Results of the annual inspection of ACRA carried out by the internal control body

The rating activities performed by ACRA are in line with Russian legislation and ACRA’s internal documents.

The rating process is subject to control procedures aimed at identifying conflicts of interest and independence of rating activities from political or economic influence, as required by Federal Law No. 222-FZ, the Bank of Russia regulations, and ACRA’s internal documents. The control procedures currently in place are assessed as adequate. No conflicts of interest have been discovered in the course of the rating process.

The inspection revealed certain deficiencies in terms of the composition and structure of control procedures aimed at ensuring proper implementation of the Agency's operational and analytical processes. A relevant plan aimed at eliminating those deficiencies has been approved by the Board of Directors and is being implemented.

4. Statistics on the allocation of rating analysts

Table 1. Statistical information on the distribution of rating analysts by the classes of objects of credit rating, rating actions on assignment, and reviews of credit ratings performed in 2019

³ Debt instruments are issues of municipal bonds of the regions of the Russian Federation and municipal entities, as well as corporate bonds of non-financial companies, banks, non-bank financial organizations and other issuers, and project finance instruments placed under public subscription, with the exception of structured finance instruments.
⁴ Structured finance instruments are debt instruments that typically have the following attributes:
- Issuer meeting the requirements of limited risk of bankruptcy;
- Granular portfolio as the main source of emission collateral;
- Tranche (the order of execution of obligations on bonds of different issues and/or monetary obligations under contracts that are secured by the same collateral portfolio);
- No full credit substitution (guarantees, sureties from third parties).

All of ACRA’s rating analysts may participate in credit rating assignments and reviews.

5. Rating analyst rotation

5.1. Requirements to rotate lead rating analysts

ACRA ensures a procedure of rotation — replacement of lead rating analysts who participate in preparation of a rating action with regard to one rated entity.

Lead rating analysts are not allowed to participate in rating actions pertaining to a given rated entity for more than four consecutive years and for more than five consecutive years in relation to sovereign credit ratings.

Lead rating analysts who have terminated their participation in rating actions related to one rated entity due to rotation are not allowed to participate in rating actions related to this rated entity for two years following the rotation.

5.2. Data on the rotation of lead rating analysts in 2019

There was no mandatory rotation of lead rating analysts in 2019, as it was not yet time for mandatory rotation.

6. Document storage policy

ACRA stores internal data and documents, including those used in its rating activities, as long as required by the Bank of Russia (but not less than five years), and ensures the integrity, accuracy, and reliability of these documents in order to provide for verifiability of the accuracy of rating actions. All internal data and documents are kept on file to ensure objectivity of rating activities, as well as to support the processes and procedures of internal control and their effectiveness.

ACRA ensures the storage of information within the timeframes defined by the Bank of Russia’s requirements, including the following information and data:

• Information on the composition of rating committees, sets of documents and data related to the resolution on the implementation of a rating action, as well as the minutes of rating committee meetings;
• All initial information upon which lay the basis for rating analysis, including documents and information provided by rated entities, emails, rating meeting minutes, and other information;
• All versions of methodologies, models, and validation reports;
• Data related to interaction with clients in the framework of concluding agreements, as well as agreements on rating actions, agreements on additional services, and other agreements;
• Communications with regulatory bodies;
• Materials reviewed by management bodies;
• ACRA’s internal documents.

Information and data related to analytical activities, development, and methodology validation are stored on dedicated IT resources, separate from other IT resources containing information on contracts and remuneration for assigned ratings.

Access to ACRA’s IT resources is provided in compliance with the “Chinese wall” and “need-to-know” principles.⁵

ACRA has appointed an IS Officer responsible for the implementation of information security measures, compliance with ACRA’s information confidentiality regime, the requirements of the legislation of the Russian Federation, as well as the requirements of the Bank of Russia for the safety and protection of information obtained in the course of ACRA’s activities.

⁵These principles can be found in the Policy on handling Confidential Information: https://www.acra-ratings.com/about/compliance/72.

7. Information on revenues

Table 2. Information on revenues for the period from January 1 to December 31, 2019

⁶ The List of Additional Services approved by the Bank of Russia is available at https://www.acra-ratings.com/compliance/122.

8. Mandatory training of rating analysts

To ensure the necessary level of competence, rating analysts completed the required number of mandatory training hours in 2019, as outlined by ACRA’s internal documents.