Philippine SEC tightens credit rating agency rules and raises capital requirements

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SEC tightens credit agency rules

Highlights

SEC Memorandum Circular No. 29 prohibits credit rating agencies from rating entities when 10% or greater ownership or significant influence creates conflicts of interest, effective October 20.
The new rules raise minimum paid-up capital for credit rating agencies to P50 million upon accreditation and to P70 million three years later, with existing agencies given 36 and 72 months to comply.
Revised regulations broaden supervision to cover all listed debt instruments and require 30% independent board members, tighter conflict rules, and enhanced public disclosure on governance and rating outcomes.

New independence standards and capital thresholds

As reported by BusinessWorld Online, the SEC issued Memorandum Circular No. 29, Series of 2026, on Oct. 20, barring credit rating agencies from issuing ratings when ownership or influence links create conflicts of interest with the entity being rated. The restriction applies when a person directly or indirectly holds at least 10% of the ownership or voting rights in both entities, or exercises significant influence over both.

The revised framework also requires agencies to report unaccepted and private ratings to the SEC to discourage rating shopping, where issuers seek more favorable credit assessments. SEC Chairperson Francisco Ed. Lim said in a statement on Tuesday that the rules are meant to strengthen independence, governance and transparency in a market where issuers pay for ratings that investors use.

The new rules raise the minimum paid-up capital requirement for credit rating agencies to P50 million upon application for accreditation, increasing to P70 million three years after accreditation takes effect. Existing accredited agencies have 12 months from the circular's effectivity to comply with most revised requirements, while the P50 million and P70 million thresholds must be met within 36 and 72 months, respectively.

New agencies applying within the first 12 months after the circular takes effect may initially maintain P30 million in paid-up capital, subject to the same capital milestones. The SEC said the higher capitalization requirements are intended to help agencies sustain independent operations and provide investors with adequate information on debt securities, particularly during economic downturns.

Broader market coverage and governance impact

The revised rules expand credit rating regulation beyond existing coverage to include corporate bonds, commercial paper, structured products, sukuk instruments, covered bonds, sustainability-linked instruments and other debt securities. That broader scope suggests tighter supervisory standards across a larger share of the Philippine fixed-income market.

Under the framework, at least 30% of a CRA's board, including its chairperson, must be independent directors, and those directors must serve fixed, non-renewable terms of no more than five years. Agencies must also adopt policies to identify and manage conflicts of interest and secure SEC approval for ownership changes that result in a new controlling shareholder.

The rules limit ancillary services that could compromise rating independence, although agencies may still offer economic forecasts, general data analysis and financial research if those services do not put them in a position of rating their own work. Revenue from ancillary services must also not exceed revenue from credit rating activities as the agencies' largest source of income.

The framework sets a target rotation period of four years for lead analysts, followed by a two-year cooling-off period, with agencies required to document any deviation. Credit rating agencies must also review their methodologies every three years through a function independent of revenue-generating activities, and communicate findings and recommendations to the SEC for supervisory purposes.

To strengthen transparency, agencies must publish annual reports within four months after each fiscal year-end, detailing governance structures, staffing, remuneration policies and compliance systems. They must also disclose historical default rates, rating transition matrices, and publish a press release and rating report on their websites for each rating assignment, while keeping issuer-submitted information confidential and limited to rating purposes.

In our earlier coverage of the Philippines’ planned sovereign bond reforms and expected inclusion in J.P. Morgan’s Government Bond Index-Emerging Markets, we explained how updated pricing conventions and index entry could widen the investor base and support liquidity and price discovery. We also noted that these benefits are not automatic, and that deeper capital-market development still depends on stronger disclosure and credit assessment, better market infrastructure, and credible governance that builds investor trust.

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