The Guidelines on the Approval and Registration of Credit Rating Agencies

LAWS OF KENYA
THE GUIDELINES ON THE APPROVAL AND
REGISTRATION OF CREDIT RATING AGENCIES
NO. 8512 OF 2001
Revised and published by the National Council for Law Reporting
with the authority of the Attorney-General as gazetted by the Government Printer
www.kenyalaw.org

published by the National Council for Law Reporting
with the authority of the Attorney-General as gazetted by the Government Printer
www.kenyalaw.org

Kenya
Capital Markets Act
The Guidelines on the Approval and Registration of Credit Rating
Agencies
Gazette Notice 8512 of 2001
Legislation as at 31 December 2022
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• NC: Only noncommercial uses of the work are permitted.
• SA: Adaptations must be shared under the same terms.
Share widely and freely.

The Guidelines on the Approval and Registration of Credit Rating Agencies (Gazette Notice 8512 of
2001)
Contents
Paragraph 1. ........................................................................................................................................................................................................... 1
Subparagraph 1.1 .......................................................................................................................................................................................... 1
Paragraph 2. ........................................................................................................................................................................................................... 1
Subparagraph 2.1 .......................................................................................................................................................................................... 1
Subparagraph 2.2 ..........................................................................................................................................................................................

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Subparagraph 2.3 .......................................................................................................................................................................................... 1
Paragraph 3. ........................................................................................................................................................................................................... 2
Subparagraph 3.1 .......................................................................................................................................................................................... 2
Subparagraph 3.2 .......................................................................................................................................................................................... 2
Subparagraph 3.3 ..........................................................................................................................................................................................

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Subparagraph 3.4 .......................................................................................................................................................................................... 2
Subparagraph 3.5 .......................................................................................................................................................................................... 2
Paragraph 4. ........................................................................................................................................................................................................... 2
Subparagraph 4.1 .......................................................................................................................................................................................... 2
Subparagraph 4.2 ..........................................................................................................................................................................................

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Subparagraph 4.3 .......................................................................................................................................................................................... 2
Subparagraph 4.4 .......................................................................................................................................................................................... 2
Subparagraph 4.5 .......................................................................................................................................................................................... 2
Paragraph 5. ........................................................................................................................................................................................................... 2
Paragraph 6. ...........................................................................................................................................................................................................

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2
Subparagraph (a) ........................................................................................................................................................................................... 2
Subparagraph (b) ........................................................................................................................................................................................... 2
Subparagraph (c) ............................................................................................................................................................................................ 2
Paragraph 7. ............................................................................................................................................................................................................ 2
Paragraph 8. ...........................................................................................................................................................................................................

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2
Subparagraph (a) ........................................................................................................................................................................................... 2
Subparagraph (b) ........................................................................................................................................................................................... 2
Subparagraph (c) ............................................................................................................................................................................................ 3
Subparagraph (d) ........................................................................................................................................................................................... 3

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The Guidelines on the Approval and Registration of Credit Rating Agencies (Gazette Notice 8512 of 2001) Kenya
CAPITAL MARKETS ACT
THE GUIDELINES ON THE APPROVAL AND
REGISTRATION OF CREDIT RATING AGENCIES
GAZETTE NOTICE 8512 OF 2001
Published in Kenya Gazette Vol. CIII—No. 82 on 21 December 2001
Commenced on 21 December 2001
[Revised by 24th Annual Supplement (Legal Notice 221 of 2023) on 31 December 2022]
1. Introduction
The Capital Markets Authority is seeking to promote the establishment of credit rating agencies as part
of measures aimed at building an active corporate securities debt market and impetus to deepening of the
domestic capital markets. These are guidelines on the requirements for approval and registration of credit rating agencies in Kenya. 1.1 Credit Rating:
Credit rating is an objective and independent opinion on the general creditworthiness of an issuer
of a debt instrument, and its ability to meet its obligations in a timely manner over the life of the
financial instrument based on relevant risk factors including the ability of the issuer to generate
cash in the future.

ly manner over the life of the
financial instrument based on relevant risk factors including the ability of the issuer to generate
cash in the future.

Ratings rank the debt issue within a consistent framework to compare risk
among the different debt instruments in the market and assign a risk grade. As it pertains to assessment of future likely positions on the basis of both quantitative and
qualitative judgment and past performance, credit rating is necessarily subjective. The goal of
the rating process is to arrive at a reasoned judgment on credit risk not through a set formula but
rather through a careful review and analysis of the critical issues surrounding a specific debt and
the issuer. This in particular includes the ability of the management to sustain in future, cash
generation in the face of adverse changes in the business and economic environment. A rating
is therefore an informed opinion of future outcome based on known qualitative and quantitative
factors. A rating does not constitute a recommendation to purchase, sell or hold a particular security. In
addition, a rating does not comment on the suitability of an investment for a particular investor.

to purchase, sell or hold a particular security. In
addition, a rating does not comment on the suitability of an investment for a particular investor.

The objective of a credit rating is to provide independent, high quality, impartial, value-added
quantitative and qualitative review as well as analytical information on the risk profile assessment
of issuers of financial instruments. It therefore serves to promote confidence in the capital markets and enhance transparency by
facilitating investors’ awareness on underlying risks of an issuer or issued financial instrument
through assignment of ratings. 2. Core Professional Capacity
2.1 The applicant must make evident its capacity to perform the role of a rating agency. 2.2 The applicant must have a background and experience as well as professional expertise to provide
the service of a rating agency. 2.3 The applicant must either be in the process of appointing or have appointed professionals including
economic, financial and research analysts, and other relevant quantitative and qualitative analysts
who have the relevant background in the rating business. 1

, financial and research analysts, and other relevant quantitative and qualitative analysts
who have the relevant background in the rating business. 1

The Guidelines on the Approval and Registration of Credit Rating Agencies (Gazette Notice 8512 of 2001) Kenya
3. Objectivity and Independence
3.1 The applicant must demonstrate its independence and objectivity. 3.2 The applicant must not be associated directly or indirectly with group(s) who have conflicting
interests in the area of the rating business. 3.3 The applicant must also demonstrate that it has a proven rating methodology. 3.4 The rating process must have sufficient internal checks and balances to safeguard objectivity in
particular where qualitative judgment also plays an important role in the rating process. 3.5 The rating process must be based on quantitative and qualitative review of facts and must not rely
in hearsay or rumours to downgrade or upgrade a particular issuer or issued financial instrument. 4. Ownership
4.1 In order to ensure independence and objectivity, the applicant must be a body corporate with a
preponderance of an institutional shareholding of repute. 4.2 The shareholders, board of directors, management and professional analytical staff should be
persons of impeccable character.

reholding of repute. 4.2 The shareholders, board of directors, management and professional analytical staff should be
persons of impeccable character.

4.3 The applicant should partly be owned by an internationally recognized rating agency or have a
contractual arrangement with an internationally recognized rating agency that provides technical
and strategic support drawn from international experience. 4.4 For purposes of this guidelines, an internationally recognized agency shall be a rating agency which
has been in the business of providing credit ratings for debt securities or any securities of interest
to investors, which obligates the issuer to pay back the principal amount raised in more than two
markets for at least five years. 4.5 The ownership structure or association and capital level shall not be the only basis or criteria of
determining the independence and integrity of a rating agency. 5. Capital Requirements
The applicant shall have a stable financial base with a minimum paid up capital of KSh. 12 million (or the
equivalent in US dollars). 6.

Requirements
The applicant shall have a stable financial base with a minimum paid up capital of KSh. 12 million (or the
equivalent in US dollars). 6.

Disclosure of Information by Rating Agency
The rating agency must disclose to the Authority, issuers and the general public the following—
(a) General fee structure or any change thereof;
(b) downgrades of ratings;
(c) disclosure of ratings of commercial paper or corporate bonds as applicable. 7. Confidentiality
The rating agency must have a system of maintaining on a confidential basis the information supplied
strictly for the purpose of rating by issuers in order to safeguard and promote confidence in the rating
process. 8. Documents to Accompany the Application for Approval and Registration of a Credit Agency in Kenya
An application for approval and registration should be made to the Capital Markets Authority
accompanied by the following—
(a) certificate of Incorporation, Memorandum and Articles of Association;
(b) business plan (to include resumes of the top management staff, management structure, brief on the
rating methodology, rating grades, fee structure);
2

business plan (to include resumes of the top management staff, management structure, brief on the
rating methodology, rating grades, fee structure);
2

The Guidelines on the Approval and Registration of Credit Rating Agencies (Gazette Notice 8512 of 2001) Kenya
(c) a sample of a standard agreement between the rating agency and its clients;
(d) draft sample "letter of requests" for rating accompanied by a draft of the "information requirements
for rating securities".
3