Regulatory affairs – Conflicts of interest

17 June 2016

To ensure the objectivity and independence of its credit ratings, The Economist Intelligence Unit will identify, eliminate or manage and disclose, clearly and prominently, any actual or potential conflicts of interest that may influence the analyses and judgments of its editors, and any other person directly involved in the issuing and approving of credit ratings.

The EIU will keep records of all significant threats to the independence of its credit rating activities and that of its employees and other persons involved in the credit rating process, as well as the safeguards applied to mitigate those threats.

The EIU will take all necessary steps to ensure that it credit ratings are not affected by any existing or potential conflict of interest or business relationship involving its credit rating activities, its managers, editors or employees.

To this end the EIU has established the following policies in relation to employees and other persons involved in the credit rating process:

• • EIU editors do not participate in the commercial activities of the company, are not responsible for sales or revenues, and are prohibited from participating in the setting of subscription fees or other charges to users of EIU credit ratings.
• • The EIU will ensure that conflicts of interest are properly identified, eliminated, managed and disclosed by the compliance function.
• • The EIU will design its reporting and communication channels to ensure the independence of those involved in the issuing and approving of credit ratings. This includes a prohibition on editors participating in any commercial activities; a record of any communication between the editor and the rated entity; disclosure of any attempt by parties outside of EIU to influence the rating; and full and unfettered access by the Compliance Director into the work of editors.

Rules governing the provision of services to rated entities

The EIU will not provide consultancy or advisory services to a rated entity or related entity regarding the corporate or legal structure, assets or liabilities of that rated entity. Moreover, EIU will ensure that any services provided to rated entities, including ancillary services, do not present conflicts of interest with its credit rating activities. The EIU will disclose in its ratings reports any services provided for the rated entity or any related third party.

Employment/relationships with rated entities

Persons directly involved in the issuing and approving of credit ratings; editors; persons providing services to the credit rating agency directly involved in credit rating activities, and persons closely associated with them, will not participate in or otherwise influence the determination of a credit rating of any particular rated entity if they:

• • own financial instruments of the rated entity or related entity, other than holdings in diversified collective investment schemes;
• • have had recent employment, business or other relationship with the rated entity that may cause or may be generally perceived as causing a conflict of interest.

Editors and consulting editors will not take up a key management position with a rated entity or its related third party within six months of issuing a credit rating on that entity or its related third party.

No editor who has worked for a government will become editor of the CRS reports relating to that country until a period of at least two years has elapsed.