Reflections on China’s Credit Reporting Practice

Read, Systems

Prof. Wu Jingmei discusses in her contribution to the book “Social Credit Rating” the current situation, logic and development trends of China’s credit reporting system. China’s credit reporting system is composed of financial, commercial and administrative credit reporting, which were set up according to its resource allocation system divided into financial sector, non-financial sector, and government sector, respectively.

The three sectors take credit as one of the referential factors in resource allocation, and establish corresponding credit reporting systems and credit evaluation mechanisms. The high participation of government departments in resource allocation gives the pattern, content, and purpose of the credit reporting systems its Chinese character, says Prof. Wu Jingmei. China’s three major resource allocation systems and three major credit reporting systems complement each other, which is a new type of social governance model to achieve co-governance on credit rules.

Professor Wu Jingmei, School of Finance, Renmin University of China. Prof. Wu has engaged in credit research for more than 30 years. She founded modern credit theory and built the theory of credit capital and three-dimensional credit theoretical framework. Her credit theory has a far-reaching influence on the construction of China’s social credit system.

Prof. Wu has participated in the formation and argumentation of many credit-related policies of China. As a core member of the drafting team and the leader of the expert argumentation committee, she took part in “Outline of the Plan for the Building of Social Credit (2014-2020)”, issued by the State Council of China. She was also the leader of the expert argumentation committee of “Overall Plan for the Building of Unified Social Credit Code System for Legal Persons and Other Organizations” (approved and transmitted by the State Council of China). In the assessment of the first-batch model cities of social credit system building in China, she was the leader of the expert assessment committee. So far, she has led hundreds of credit research projects of government ministries, local governments and large corporations.

Retail Investors Benefit From the Quant IP Innovation Score

Investors, Performance, Read

The Munich investment boutique Quant IP is launching a new tranche for private investors for its equity fund Quant IP Global Innovation Leaders Fund. This gives investors the opportunity to invest small sums in the fund or to take out a savings plan. “We want to give self-decision makers the opportunity to invest in our successful strategy and create an offer with which consultants can also reach customers with savings plans,” says Lucas von Reuss, founder and managing director of Quant IP.

The new tranche comes 15 months after the launch of the Quant IP Global Innovation Leaders Fund. The global equity fund was able to achieve a performance of almost 12 percent in this period, outperforming its benchmark MSCI World by around 6 percentage points *. The fund achieved this with comparatively lower fluctuations and thus confirmed the good results from the back test.

So far, the fund has mainly attracted independent asset managers. “We are convinced that our approach will also convince private investors – who doesn’t want to invest in the most innovative companies in the world?” This is how von Reuss sums up the fund’s basic investment idea. At Quant IP, these are identified on the basis of patent data that is quantitatively evaluated. Stock selection and portfolio construction are rule-based on the basis of the Quant IP Innovation Score, which summarizes several indicators that measure innovation growth, quality and efficiency.

Structurally, the focus in the broadly diversified portfolio is on the IT and healthcare sectors. The fund tends to be overweight in Japanese stocks and holds fewer US stocks than the benchmark. The stocks of the Japanese online group Z Holdings, the Google parent Alphabet and the computer manufacturer HP are currently heavyweights.

A Study on the Typological Regulation of the Dishonesty Punishment – also on the Rule Design of the Social Credit Law

Governance, Read

The punishment of dishonesty is an important content of the credit rule of law, writes Wang Wei in the book “Social Credit Rating“. “The punishment of dishonesty is not a precise legal concept,” he says, “so we must use legal technology to analyze and define it.”

In the market punishment, industrial punishment, social punishment, administrative punishment, judicial punishment and other punishment mechanisms, the punishment by the public power is the focus of the credit rule of law, he points out: “Administrative disciplinary measures are not all power-limited measures. In essence, the administrative blacklist measure of power restriction belongs to administrative punishment, but it does not violate the principle of “one punishment for one violation”. In the future, when legislating the social credit law, we should typologically regulate dishonesty punishment and focus on the administrative punishment regulating the constitutive elements, punishment measures and procedures, credit restoration mechanism and other issues.”

Wang Wei, male, PH.D, professor, director of Civil, Commercial & Economic Law Division attached to Politics and Law Department of Central Party School of CPC (Chinese Academy of Governance) (Beijing 100091). He graduated from Law School of Renmin University of China, mainly engaged in the research of social credit law. company law, market regulation law. In recent years, he focuses on the research of social credit law and involved in the projects from National Development and Reform Commission, State Administration for Market Regulation, and so on. He has participated in drafting a number of expert proposals on social credit legislation. Still. he acted as civil and commercial judge in Kunming Intermediate People’s Court of Yunnan Province for a couple of years. This paper was originally published in Zhongzhou academic journal, issue 5, 2019, and reprinted in issue 8 of constitutional law and administrative law in Periodical Literatures by Renmin University of China.

unrecognizable man showing weapon

No Movement! Data or Life!

Models, Read

For many people it has become a reality: life is completely monitored. Hence it is no longer a question of whether life is, can or should be observed by strangers. It’s all about how, according to which rules, and by whom, with what consequences.

Anyone who wears a smartwatch at night transmits their data to Apple, Google, Huawei or other service providers before they wake up, who record the movements and at least also the pulse. Once you wake up, even without an Apple Watch on your arm, reaching for your smartphone shows when the day began. Regardless of which app is used, the data streams reach strangers.

Anyone who communicates with Alexa while preparing breakfast in the kitchen not only reveals his presence in the kitchen. The fact that emails can at least be read by the provider does not require any further explanation. Only encryption protects a little from the content on WhatsApp and other platforms, such as postcards, from being disclosed to any (virtual) postman.

However, less attention is paid to the fact that practically all telephone calls are made over the Internet, i.e. are digitized. This also allows strangers to access the conversations. In the interests of the security of the Federal Republic of Germany and the European Union, phone conversations going outside of Europe are carefully analyzed.

For offline purchases, the receipts list all products and assign them to credit cards or other payment instruments so that the identity and transaction can be traced here too. When making purchases and services online, the identity of the buyer and seller is inevitably determined.

Restaurant visits are to be documented and addresses given. Anyone who meets with business partners in the café had to disclose the exact consumption, the reason for the meeting and the people involved to the tax office even before the Corona crisis.

Employees have to document their daily routine to their employers and face the performance appraisal. The self-employed must explain their activities in detail in their tax returns.

Anyone who does not leave their house or apartment due to the pandemic, i.e. who works from the home office, has food been delivered by delivery services and meets their friends online, gives their life completely to the observation of strangers – with the smartwatch on their arm. When walking through the fresh air, the steps are counted, the route is recorded and the pulse is evaluated.

How little this bothers most people shows that misuse of the data disclosed in this way is apparently the exception rather than the rule. Passing on the data has no noticeably negative consequences for most people.

The political, societal, economic and social manipulation and abuse potential need not be explained in view of the many relevant media reports. However, the question that needs to be discussed is what role social credit systems will play in the future. The book “Social Credit Rating” seeks answers.

people wearing diy masks

Groundbreaking Multifunctional Monitoring and Surveillance System for Compliance with Corona Hygiene Protection Measures

Compliances, Read

Artec technologies AG (ISIN DE0005209589) is now offering a multifunctional monitoring and monitoring system for compliance with corona hygiene protection measures called MULTIEYE OverCrowding Watch App. The software is based on existing artec products that have proven themselves in practice with the support of AI-based software components. The listed software company from Diepholz, Germany, has been developing software and system solutions for the security sector under the brand name MULTIEYE since 2000.

The MULTIEYE OverCrowding Watch App detects the non-wearing of masks, measures and controls compliance with the maximum number of people in shops, restaurants, bars, at events or in buses, trains, etc., has a person-direction detection at entrances and exits as well as others features. Several sensors can be connected to the system, so that larger objects such as shopping centers and event areas with many entrances and exits can be controlled.

The software signals acoustically and visually on information displays and on control monitors as soon as a customer approaches the access area without a mask or the maximum permissible number of people is exceeded. The OverCrowding Watch app also enables statistical evaluations to analyze the implementation of hygiene measures. The OverCrowding Watch app is operated in accordance with the provisions of the GDPR.

Artec technologies AG seems to continue its success story. In addition to the new developments, the company has concluded numerous maintenance and support contracts in the past few weeks. Customers are both security and broadcast customers. They include, for example, a media company and a sports academy from Qatar, a sports broadcaster from France and a security agency from Germany.

The terms are between 12 and 36 months. In total, the orders are worth € 250,000. In addition, artec expects further maintenance and support contracts in the amount of € 250,000 to € 300,000 in the fourth quarter of 2020. With incoming orders of more than € 0.5 million, artec will post a record in the service business this year. The service business is characterized by easily predictable sales and attractive margins.

In the case of smaller solutions in particular, customers rely on support contracts that include telephone support and email support. The maintenance contracts include the maintenance as well as the repair of the artec systems, depending on the customer. In particular in the cloud business and when using the MULTIEYE BOS Manager, a system for situation centers and control centers of authorities and organizations with security tasks (BOS), in the private cloud of the authorities, a regular visual inspection of the hardware as well as the automated and manual software-based error analysis takes place during operation . In this way, problems can be discovered at an early stage before they disrupt live operation. Maintenance contracts often also include the provision of minor updates and software upgrades.

Risk Culture as a Means of Mitigating Conduct Risk

Methodologies, Models, Read

Thomas Kaiser and Tatjana Schulz write in their contribution to the book “Social Credit Rating” about the similarities with and differences to the China Social Credit System: Banks around the world have been exposed to numerous cases of misconduct at individual as well as on a systemic level, inflicting harm on single customers and the society as a whole. This includes inappropriate product design (e. g. securitizations which led to the financial crisis), large-scale market manipulations (LIBOR and other reference rates) as well as other fraudulent activities (e. g. creation of accounts without the knowledge of the affected clients).

“Regulatory bodies have reacted with a broad range of requirements and recommendations. A key tool in fighting misconduct”, Thomas Kaiser and Tatjana Schulz write, “is the strengthening of risk culture as an institution’s norms, attitudes and behaviours related to risk awareness, risk-taking and risk management, and the controls that shape decisions on risks.”

They see implementing risk culture frameworks as a means of influencing behaviour of employees to mitigate those risks in individual banks and thus ultimately to improve the reputation of the banking sector as a whole. While banks have made progress in designing those frameworks, the maturity of this particular discipline is still at a moderate level and full-scale implementation is not yet common.

The China Social Credit System also aims at improving behaviour of individuals and corporations by setting clear expectations and measuring compliance with those, the authors say: “Chinese authorities have gathered substantial experience with this methodology during pilot implementations and are refining the approach further during the rollout throughout the country. A comparison of those two approaches leads to suggestions on what the two approaches could learn from each other.”

Prof. Dr. Thomas Kaiser has been working in risk management for more than 20 years. He is Director in the Financial Services division of KPMG AG Wirtschaftsprüfungsgesellschaft in Frankfurt / M. and honorary professor for risk management at the Goethe University Frankfurt. After studying business administration in Saarbrücken and completing a doctorate in the field of financial econometrics in Tübingen, Prof. Kaiser held a managerial role in risk controlling at four major German banks. He is co-editor of the Journal of Operational Risk and the author of numerous essays and books on risk management topics.

Tatjana Schulz works for KPMG AG Wirtschaftsprüfungsgesellschaft in Munich. As a psychologist with a focus on risk research and a banker with many years of experience in the financial services sector, she deals with the qualitative elements of risk management at KPMG. Among other things, she supports the audit teams in the areas of operational risk and risk culture and has valuable insights into the current state of implementation of the regulatory requirements in the German banking landscape.

Determinants of Consumer Credit Default in Romania: A Comparison of Machine Learning Algorithms

Read, Uses

Prof. Dr. Monica Dudian and Ana-Maria Sandica investigate the separation power of several machine learning techniques and compared them with the benchmark logistic regression using real data from 17520 private individuals of a Romanian commercial bank. The result of their research can be read in the book “Social Credit Rating“.

In order to capture the financial crisis effect they equally divided the data in two samples prior and posterior the crisis and we compared 13 models in terms of misclassification Type I and II Errors. As the models aim to catch best the patterns in the “default” profile of a consumer credit borrower, they split the variables in socio-demographic factors (Social Rating) and financial factors (Financial rating) and conclude that “default” profile prior crisis is captured better by the linear models while the patterns of the financial crisis are captured better by the non-linear models.

Monica Dudian and Ana-Maria Sandica found that the accuracy ratio gives the better results on decision trees and ensembles based on decision trees such as adaptive boosting methods (Financial Rating) and Random Forest (Credit Rating, Social Rating) irrespective of the sample choice.

The power of the model to classify the debtors using Social Rating, Financial Rating and the mix of these, the Credit Rating, depends on the trained data used. The Financial Rating’s champion model’s results are best on posterior crisis data, meaning that financial factors counted the most in detecting the patterns in “default” after the financial crisis. The order is not the same for Social Rating, where the best classification is obtained on prior crisis data meaning that classification considering the individual’s creditworthiness is more difficult on posterior crisis “default” patterns.

Prof. Dr. Monica Dudian is Professor of Economics at The Bucharest University of Economic Studies, where she received her PhD in Economics in 1999. She also held the position of Vice dean of the Faculty of Economics of The Bucharest University of Economic Studies, during 2001 – 2008. Her teaching is focused primarily on microeconomics and industrial organization. She manages research grants and performs research on country risk, credit risk, and industrial economics.

Dr. Ana-Maria Sandica has been developing credit risk models for more than 10 years. She started to study machine learning techniques during her master degree in Financial Econometrics (Dofin) and continued with completing a doctorate in the field of stochastic equilibrium models in Macroeconomy. Her thesis on postdoctoral research links the macroeconomic shock transmission mechanism in estimating the probability of bankruptcy for companies. She held a managerial role in model risk validation at a major German bank.

computer desk laptop stethoscope

Credit Rating Information Failed to Deliver

Performance, Read

AvP Deutschland GmbH is an example of a rating dilemma: The company is too small to belong to the group of companies closely monitored by recognized rating agencies automatically, and too large to be ignored as a risk.

In general, credit reference agencies only use the financial statements and other official information available from the registry courts. So also in the case of this company. Therefore, the last data of the annual financial statements available from the German Federal Gazette are more than 18 months old. As a financial service provider, the insolvency application can only be submitted with the approval of the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin).

Until recently, the company had comparatively good ratings therefore: Credit Index 2.5, Risk Score 70 and an International Score B, indicating a Probability of Default of only 0.34 %. The default risk was reckoned to be medium. The business connection was rated “acceptable”. By end of 2018, due to the existing profit and loss transfer agreement, equity remained unchanged at EUR 3,191 thousand. The capital structure is balanced; the equity ratio was 22.9% with constant equity (previous year 19.9%).

On September 14, 2020, BaFin appointed Ralf R. Bauer as a special commissioner at AvP Deutschland GmbH. BaFin has given him sole management responsibility. On September 15, 2020, the special commissioner filed for bankruptcy at the insolvency court of the Düsseldorf district court for AvP Deutschland GmbH. The annual average number of employees was 60 (based on the fiscal year from January 1 to December 31, 2018).

For public pharmacies, hospital pharmacies, medical supply stores and other service providers, AvP Deutschland GmbH takes on the billing of prescriptions to the statutory cost carriers, such as AOK, BEK, DAK, TK, etc. in the context of German statutory health insurance.

The situation regarding new functions of the “Elektronische Gesundheitskarte” (electronic health card) was still unaffected by changes in the year 2018. The company’s dependence on the development of legal framework conditions is considerable. The e-prescription must not become a plaything of lure offers, advertising terror and discount battles on the patient’s cell phone. Something like this is conceivable with “apps” that want to access them before redeeming the e-prescription and promise the patient supposed advantages. These can be online platforms or mail order data dealers, for example. The Patient Data Protection Act (PDSG) passed in summer 2020 is intended to exclude influencers and advertising in this context.

AvP Deutschland GmbH expected competitive market conditions in Germany to continue. The specific business risks were primarily in competition with other billing service providers. In addition, products such as the aid contract database, ScanAdhoc, in particular with Pharma-Control, but also other services such as a. Clearing and the Dialog Center worked on maintaining a technological and service-oriented role.

Fundamental risks lay in the default rate of the company’s customers. Should the company’s customers, due to a changed interest situation, decide not to carry out any more business in the area of ​​factoring, this leads to falling income and thus possibly to a worsening of the company’s financial situation.

For the company, due to the business model it operates, there were market price risks in the area of ​​loan interest from the refinancing banks. Given the interest rate level in 2018 and the market forecast, the company correctly expected no significant increase in market interest rates in the medium term. According to 2018 financial statements, liquidity risks were also not discernible to the management due to the regular monitoring of all incoming and outgoing payments as well as income and expenses.

By establishing a syndicated loan, the company had strengthened its cooperation with a banking consortium with a contract term of 3 + 1 years. The financial risks lay in the company’s high transaction volume and the variable interest rates on the billing accounts. Changes in interest rates had a direct impact on the amount of interest paid. This risk was countered by using interest rate hedges (SWAPs). The company saw essentially no default risks because the billing fees to be paid by the pharmacies can be taken directly from the incoming payments from the cost units on the billing account.

By May 31, 2019, in accordance with Section 322, Paragraph 3, Clause 1 of the German Commercial Code, the auditing company stated “that our audit did not lead to any objections to the correctness of the annual financial statements and the management report.”

The rating of group companies is particularly difficult. The interdependencies between companies can be complex. The accounting rules are not suitable for providing the information required for rating complicated corporate structures with sufficient up-to-date information.

SME Rating Dilemma

Agencies, Models, Read, Regulations

Small and medium-sized companies have difficulties communicating their creditworthiness credibly. Recognized credit rating agencies concentrate their services on companies that go through a committee-based rating process. The legal framework in Europe offers no alternative to this. Only those who meet all the requirements of the EU regulation on credit rating agencies can be recognized as a rating agency. These requirements provide for an assessment process for which analysts are responsible, which leads to a decision by a rating committee. The agency’s supervisory and control bodies must be filled accordingly. Recognized rating agencies must have at least two independent non-executive directors on their board, provide a review function, etc.

Only personalities with many years of professional experience, academic training and aptitude of character are considered as rating analysts. Analysts are not allowed to perform sales functions for the rating agency at the same time. It is therefore necessary to appoint additional employees who are responsible for business development. All these requirements mean that the operation of a recognized rating agency is associated with considerable costs. Accordingly, the supervisory authority responsible in the EU, the European Securities and Markets Authority (ESMA), requires the rating agency to have sufficient capital to ensure the agency’s continued existence. All of these requirements mean that the traditional rating process, as required by law, is too expensive for small and medium-sized companies.

The rating process is too expensive for small and medium-sized companies, as the financial requirements are much lower than in large corporations. That already results from the definition of small and medium-sized companies. The costs of the rating process must be put in relationship to a significantly smaller financing volume.

However, the rating process is not necessarily easier for small and medium-sized companies than for large companies. Sometimes the opposite is even true: large companies are often organized similarly as corporations, have diversified business activities and compete with comparable companies with their products.

Small and medium-sized companies, on the other hand, often have specialists who offer unique products for a relatively small market. Often these companies are “hidden champions” who occupy a niche market. Their special expertise protects them against competitors. Due to the specialization and special expertise, the best small and medium-sized companies in terms of creditworthiness are often not easy to identify. For rating agencies that work in accordance with the restrictions of the EU regulation on rating agencies, there is hardly any team of analysts who have the necessary specialist knowledge in all specialist areas.

Credit bureaus therefore intervene in the movement of goods with customers and suppliers. These collect data from court registers and other public sources. However, due to the applicable disclosure requirements in the EU, this data is of limited topicality. Ratings calculated using such data are correspondingly outdated. Ratings are often determined on the basis of annual financial statements from the year before last. In addition, small companies, which can include listed companies, are not required to disclose their income statements.

These adverse conditions limit the possibilities of developing suitable rating models for small and medium-sized companies on a purely mathematical-statistical basis using the statutory mandatory publications.

Only a rating agency that works on a model basis but acts on behalf of the company assessed can lead out of this dilemma. In this case, the company has the option of providing more up-to-date and comprehensive data specifically for the purpose of credit rating. The annual financial statements prescribed by accounting law have many addressees. There is also a dependency on the tax balance sheet. For these reasons, statutory annual financial statements are not ideal for creating ratings.

According to the EU regulation on rating agencies, ratings based on a scoring model are not subject to approval by the European Securities and Markets Authority (ESMA). Since these ratings are not subject to supervision, they may not be used for certain applications. This affects banks, insurance companies and other institutional investors.

The aspects mentioned illustrate the difficulties that small and medium-sized enterprises in the EU face when it comes to rating.

ethnic woman doing stop gesture with palm at camera

Separation of Product Comparison, Brokerage and Insurance Services

Compliances, Governance, Read

Any rating company who does not limit itselve to the comparison of financial services, but also insures the customer against risks, must obtain approval for this. There is no free market for financial services in Germany.

The Federal Financial Supervisory Authority in Germany, Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), ordered the CHECK24 comparison portal CHECK24 Vergleichsportal Finanzen GmbH, Munich, to discontinue its insurance business by decision of August 5, 2020. “The CHECK24 Vergleichsportal Finanzen GmbH promised credit customers, which it has referred to various credit institutions via its internet platform, that they would pay up to six loan installments in the event of unemployment, but doing this without the required permission from BaFin.”

The CHECK24 Vergleichsportal Finanzen GmbH is just one of the many subsidiaries of just one of the approximately 70 companies that in turn belong wholly or mostly to Check24 GmbH. The main shareholders of Check24 GmbH are Eckhard Juls and Heinrich Blase (both born in 1967). CHECK24 Vergleichsportal Finanzen GmbH is in turn mother company to Kredite 24 Service GmbH.

The company was entered in the commercial register in 2013 as ProCheck24 GmbH with the object of the company to provide insurance and financial services of all kinds (the latter only if they do not require approval) and evidence of the possibility of concluding contracts for insurance and financial services of all kinds, including the development and establishment of new sales channels therefore as well as the provision of IT services for the electronic processing of contracts in trade and financial advice. “Activities requiring approval are not part of the company”, it said at the time in the commercial register.

The CHECK24 comparison portal Finanz GmbH is about comparing and brokering financial services of all kinds and operating a media, advertising and marketing agency. The provision of financial services within the meaning of Section 1 (1a) KWG should not be the object of the company, nor should investment brokering within the meaning of Section 1 (1a) lit. a KWG.

Kredite24 Privat is an online loan for free use that is granted for long periods. The personal loan is available exclusively via the CHECK24 loan comparison. For the loan with free use, Kredite24 relies on the cooperation with the DSL Bank. The Bonn-based credit institute is certified by TÜV Süd and belongs to Deutsche Postbank AG. The Kredite24 Service GmbH is a wholly owned subsidiary of the CHECK24 comparison portal Finanz GmbH, which operates the loan comparison of the internet portal.

Legal Characteristics of Forest Ownership

Read, Regulations

At the federal and state level, there are laws on forests in Germany that must be taken into account with every rating of forest investments. The federal states regulate rights and obligations differently. In the following see the example of the Hessian Forest Act (GVBl. 2013 S. 458 vom 08.07.2013).

The aim of the Hessian Forest Act is to protect the forest as a living and economic space for humans, as a community of animals and plants and because of its effects on climate protection, to increase it if necessary, taking into account the concerns of agriculture, and to protect it from harmful effects preserve. Sustainable and orderly management of the forest is to be guaranteed and forestry promoted. The Forest Act aims to achieve a balance between the interests of the general public and the interests of forest owners.

The goals of the Forest Act are to be achieved within the framework of sustainable and multifunctional forest management. The services of the forest and forestry are to be oriented towards different aspects. This includes the environment and the foundations of human life, the natural balance, biological diversity, the landscape, the soil, and the water. The purity of the air and the local climate must be protected. The forest makes a contribution to protection against noise, soil erosion and flooding (protective function). Forests should produce renewable raw materials and be sustainably usable. In particular, wood should be supplied for material, chemical, energetic and thermal use (utility function). The largest possible amount of carbon must be bound in the forest and its wood products (climate protection function). The forest offers people a place to relax and allows them to experience nature to enjoy pure air and tranquility, to increase health and well-being, for walking and hiking, for sporting, nature-friendly activities, for environmental education and for nature-friendly tourism development (recreational function).

In particular, proper forest management is characterized by a number of characteristics:

  • the longevity and sustainability of forestry production,
  • the preservation of forest ecosystems as a habitat of species-rich flora and fauna by building healthy, stable and diverse forests,
  • avoiding clear-cutting with an area of ​​more than 1 hectare,
  • the choice of tree species suitable for the location using suitable seeds and planting material while maintaining genetic diversity,
  • the site-adapted use of plant nutrients to maintain and improve soil fertility,
  • the use of the possibilities of integrated pest management while largely avoiding the use of pesticides,
  • the careful approach to maintenance, use and rejuvenation measures as well as transport,
  • the use of adapted stand and soil-conserving working methods in forestry operations,
  • needs-based forest development while protecting the landscape, stock and soil,
  • the functional design of the forest edges, which also takes into account issues of species protection, landscape maintenance and agriculture,
  • working towards game densities that are adapted to forest stands and their regeneration, as well as measures to prevent game damage.

The law requires regular forest management. It is management based on an operating plan to ensure proper forest management and sustainability. The forest owners of forests with a forest operating area of 100 hectares or more must define their forest management goals in operating plans. The operating plans are generally to be drawn up for ten years. The choice of the type of operation, the determination of wood production and its sustainability parameters is left to the forest owner, provided that this does not jeopardize the fulfillment of the basic obligations.

Bare areas, forest pelts and cleared areas with an area of more than 0.5 hectare must be reforested by the forest owner within six years through natural regeneration, planting or sowing. The forest authority can set a reasonable deadline for reforestation and order planting or sowing, provided that the forest does not naturally rejuvenate. It is forbidden to reduce coniferous wood stocks under the age of 50 and hardwood stocks under 80 years of age to less than 40 percent of the stock of the commonly used yield tables. Exceptions can be permitted by the higher forest authority if the further reduction of the stock is necessary for compelling economic, silvicultural, genetic or nature conservation reasons. Forest owners must adequately protect the forest against damage from animal and plant pests, natural events and fire.

If the forestry management of a forest area, in particular the logging and the removal of forest products, is not possible or is only possible with disproportionately great effort without the use of third-party property, the owner of the third-party property must tolerate its use. The forest owner must notify the owner of the foreign property in advance of the intended use and compensate for the damage caused by the use.

The upper forest authority in the state of Hesse can declare forests to be protective forests if it is necessary to carry out or refrain from certain forest measures in order to avert or prevent dangers, significant disadvantages or significant nuisances for the general public. In particular, the declaration on protective forests comes into consideration if the forest must be preserved in its existence and its external delimitation and if it is of particular importance for the climate, water balance, soil protection, privacy protection, noise protection or air purification.

Everyone in Hessen is allowed to enter the forest for the purpose of recreation.

Forest visitors have to show consideration for one another so that mutual nuisance or hindrance is avoided. The use of the forest must not disturb the community, hinder the management of the forest, endanger, damage or pollute the forest and not impair the recreation of others. Cycling, riding and driving with wheelchairs are permitted in the forest on paved or natural paths that have been laid out by forest owners or with their consent and on which safe traffic is possible with mutual consideration.

Forest can have public or private owners. Private forests can be managed in various legal forms. A community forest can acquire rights and enter into liabilities under its name, acquire, transfer and give up property and other rights in rem in movable and immovable property, and sue and be sued in court. Forest owners, whose forest operations are not suitable for independent, proper forest management, should join together to form forest operations associations.

The Social Credit System and China’s Rule of Law

Governance, Read

In 2014, the People’s Republic of China’s (PRC’s) central government formally declared the construction of a Social Credit System (SCS) a national task. Meanwhile, government-designated localities and companies are experimenting with scoring systems for businesses, citizens and the administration.

“The government’s initiative introduces mechanisms for a massive aggregation and exchange of data about ‘credit subjects’, pushes for the application of such credit information in the decision-making processes in both the public and the private sector, and elevates the punishment of naming and shaming to new prominence”, writes Marianne von Blomberg in the book “Social Credit Rating“. “Its conceptual heritage is social management, a governance strategy born in the political apparatus of the PRC that does not operate with the traditional notion of law. The SCS’ potentially heavy impact, as well as its conceptual heritage in social management, begs the question of what difference it makes to the rule of law in the PRC.”

A legal framework for the SCS does not (yet) exist. “It has been held that the SCS is a powerful tool to strengthen the rule of law. However,” says Marianne von Blomberg, “this thesis aims to bring to light challenges that arise from the SCS for the rule of law. It does so by considering the SCS’ conceptual cradle, and further mapping what has surfaced of the SCS to date in policy and legislative documents, the commercial credit market, and local pilot projects.”

Drawing on this comprehensive picture of the SCS, elements which appear at odds with rule of law are pointed out in her contribution to the book “Social Credit Rating“. They include a lack of legal definitions for SCS key terms such as ‘trustworthiness’, opaque procedures and possible penalties that bypass the law. Marianne von Blomberg considers ways to integrate them into the Rechtsstaat, all of which necessitate a re-definition of what law is.

“Finally,” concludes Marianne von Blomberg, “the angle of social management offers a meta-social credit system as a solution to conciliate the SCS and rule of law. The question remains whether the SCS can truly solve all problems that it brings about merely by means of its own conceptual heritage, social management theory – or whether an independent organ outside of itself is indispensable.”

Marianne von Blomberg is doing a PhD in Chinese Law at Zhejiang University in Hangzhou, from which she also holds an LL.M Degree, and is a Research Associate at the University of Cologne’s Institute for East Asian Studies. During her undergraduate studies at Zeppelin University, she discovered her passion for ancient Chinese rhetorics and wrote about the concept of originality in China in the face of architectural mimicry and counterfeit products. After having interned at the Mercator Institute for China Studies, the Future Research Department of Volkswagen AG, and the German Embassy in Ottawa, she moved to Hangzhou in 2016, where she continues to take a sociological perspective in her observations of the PRC legal system and social credit in particular. Part of her research was funded by the Fritz Thyssen Foundation under grant 10.19.2.003RE.

Consumer Reporting Agency Against Bonus Hoppers

Agencies, Read

“If you want to purchase electricity and gas cheaply, you have to compare prices and, if necessary, change providers. Energy suppliers obviously want to change that with Schufa and a credit agency.” An article about energy suppliers on tagesschau.de introduces the topic: “Electricity and gas customers who want to change their provider more often could soon be systematically discouraged.”

NDR and “Süddeutsche Zeitung” are dealing with a planned offer by SCHUFA and the Italian-owned credit agency CRIF Bürgel in Munich to save contract data from as many energy suppliers as possible across the industry.

“Consumer and data protectionists fear that energy providers will use it to identify consumers who are willing to switch and subsequently reject them.” The criticism: “So far, only data from customers who do not pay their bills or who cheat can be exchanged across the industry.” The new databases, on the other hand, would make contract-loyal customers “fair game” with their data.

“Bonus hoppers” who take the trouble to do their own research and compare utility companies are hardly a problem for energy suppliers. There have always been customers who, year by year, patiently deal with the various offers and choose the one that is cheapest for them. This cluster of consumers is a fairly small minority in Germany.

The real “game changers” with disruptive potential for the energy industry are experts such as Wechselpilot or SwitchUp. These enable the customer to switch energy providers reliably and effortlessly. Registration and some information on previous consumption and supplier are sufficient to automatically switch from year to year and save costs – depending on how advantageous it is. These comparison portals take on the rating based on various criteria and customer-specific requirements.

The added value of the planned services from SCHUFA and CRIF Bürgel, on the other hand, is not very high for the other side of the market, the energy suppliers: The energy suppliers already recognize customers who are willing to switch and can save this customer data.

This conclusion results from the logic of the system: comparison portals that have looked after their customers for years are dependent on intervening in the communication between customers and energy providers. Only in this way can they relieve the customer of the trouble of analyzing consumption, obtaining offers, comparing offers, submitting applications, filling out forms, etc.

Communication takes place via customer-specific e-mail addresses, e.g. at SwitchUp according to the pattern name@mailsup.de. Due to the still small number of comparison portals, the energy provider can in any case use these email addresses to identify who is one of the “bonus hoppers”. In addition, energy providers are not obliged to work with SCHUFA or CRIF Bürgel, so that the latter are in competition for data.

SwitchUp was founded by Arik Meyer, who previously built Audible and sold it to amazon. At companies like SwitchUp, all data on the energy consumption of German households that benefit from the advantages of this system are now pooled. If comparison portals are sold to American “data octopuses”, their data merely increases the data pools of US corporations.

Therefore, from a competition point of view, it is questionable whether regulation, i.e. restricting the business opportunities of European companies such as SCHUFA or CRIF Bürgel by banning e-pools would be in the service of healthy market competition.

Cost Rating For Private Owners When Renting

Criteria, Read

Real estate remains the most popular form of investment among Germans. In times of volatile stock markets, a real estate investment is still seen by many private investors as a secure return opportunity. However, not all private owners use their apartments themselves, but rent them out. In doing so, however, they often underestimate the costs and time required for a new rental. A current analysis by the real estate technology company Home shows the costs that private owners will incur if they rent out their apartments on their own.

The apartment expert recorded any vacancy costs as well as the costs and time required for renovation, advertisements, the selection of tenants and the handover and compared the costs for a new lease for the different parts of the city in Berlin, Munich and Hamburg. With the German yield calculator from Home, landlords can individually calculate what renting their own apartment to Home would save.

It is the business model of Home to help landlords and tenants: “With Home, landlords no longer have to worry about anything. The primary goal of minimizing rental costs is to find the right tenant quickly. Home takes on this costly and time-consuming search and accelerates it through technologies such as contactless visits and digital contract signing. The company is rethinking the letting process and offers an all-round carefree package for homeowners.

Owners have to reckon with costs of more than 3,000 € for each new rental
overall, renting a condominium in Munich costs the most, with costs of around 3,250 € for vacancies, renovations and looking for a tenant, including signing the contract and handover. In Berlin, owners should expect costs of around 3,090 €. Hamburg follows in third place with average costs of 3,080 €.

If the apartment remains unoccupied for a while between two tenants, this is annoying and can quickly become expensive – especially in Munich. On average, tenants in the Bavarian capital miss out on rental income of around 755 € with a daily rent of 37.89 € and around 20 days that the apartment is uninhabited on average. In Hamburg, the vacancy does not cost the landlords quite as dearly: At 582 €, the Hanseatic city ranks second. Berlin follows with the lowest loss for an empty apartment (524 €).

In Berlin-Grunewald, the tenant-free time causes costs of 1,465 € on average for the owners. An apartment here stands empty for around a month. Landlords in Alt-Treptow in Berlin make significantly less losses (around 146 €), as the apartments here are on the market for a significantly shorter time (6 days) and are on average cheaper (630 €).

Screening the new tenants requires patience, especially in Berlin. In addition to the “lost” rental income, the search for new tenants can also cost time, money and nerves. In particular, communication with prospective tenants, carrying out inspections and the final handover of the apartment cause effort in Germany’s metropolises – no wonder with over 100 prospective tenants per rental property.

In Berlin, private owners have to be particularly patient. With an average of around 450 contact requests and around 140 applicants, the screening and viewing process in the capital takes the longest. In Munich this process is much faster with an average of 135 contact requests and around 40 applicants. Hamburg residents are likely to be the fastest with processing around 60 contact inquiries and around 30 applicants.

In addition to the time required, advertising your own apartment is also associated with costs. Since apartments in Berlin, Hamburg and Munich are available for around 20 days on average between two tenants, landlords should post their advertisements online for at least one month. On average, landlords have to reckon with costs of around 100 € in one of the common portals (Immoscout, Immowelt or Ebay classifieds).

Renovation costs vary by up to 1,200 €, according to Home. Owners also have to take into account the costs of a renovation. Although some cosmetic repairs can be contractually passed on to the moving tenants of an apartment, maintenance costs are regularly incurred. Owners should repair signs of wear and tear that have arisen through years of use in order to maintain the value and condition of the apartment. In Germany’s major cities, landlords can expect an average of around 2,500 € for a professional renovation.

Here, the highest costs fall on the districts with the largest average living space. The renovation of a condominium costs the most at around 3,325 € in the Grunewald district. In Berlin-Gesundbrunnen (around 2,100 €), on the other hand, you pay significantly less due to smaller apartments.

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Unfair Advertising With Ratings On Social Media Platforms

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Advertising with ratings on social media platforms that are given in return for participating in a competition is unfair. It can be assumed that a lottery will generate a considerable number of ratings. The Higher Regional Court of Frankfurt am Main (OLG) therefore banned the advertising of the defendant whirlpool seller in a judgment published today. The verdict could have beyond the specific case. The rules according to which ratings may be acquired, manipulated and published are evolving. Therefore, special attention is required.

Both parties sell hot tubs commercially. The defendant advertised a competition for a luxury whirlpool on Facebook. The German text says: “How can you win? Very simple: like this post, comment on it, share it; like or rate our site. Each promotion receives a ticket and increases the chance of winning ”. The plaintiff considers it to be anti-competitive if the defendant advertises with ratings that were given in this way in return for participation in a competition.

The district court has ordered the defendant to stop to advertise with ratings if these ratings were influenced by enabling participation in the lottery in return for submitting a rating. The appeal directed against this was – as in the previous urgent procedure – unsuccessful before the OLG.

The OLG decided that advertising with the reviews in question was misleading and therefore unfair. In principle, statements made by third parties in advertising had an objective effect and were therefore generally rated higher than statements made by the advertiser himself. Therefore, advertising with paid recommendations is not permitted.

A customer who makes a recommendation must be free and independent in his judgment. Here the defendant advertises with its Facebook ratings and the good average rating achieved there. However, some of the ratings were not given freely and independently. OLG arguest that it should be assumed that a not inconsiderable part of the ratings was only given because the rating was “rewarded” by participating in the competition.

“It is obvious that ratings on the occasion of the lottery are rather positive. It is not a ‘paid‘ recommendation in the literal sense of the word. Nevertheless, the evaluations are not to be regarded as objective,” states the OLG. It is also irrelevant that the plaintiff can provide concrete evidence of which evaluations were caused by the competition. “It is obvious that the competition generated a significant number of ratings,” the OLG explains.

An Economic Approach to China’s Social Credit System

Methodologies, Models, Read

In an effort to increase trustworthiness across society, the Chinese government has been building its Social Credit System since 2014. This system targets all natural and legal persons in China and consists of four major elements: a central data platform, a rating system for commercial creditworthiness, a propaganda system for educative purposes and a publicly available listing system with black- and redlists (for negative or positive behavior) as well as consequential joint punishments and rewards.

While most of the related academic discourse has focused on the system’s political implications, Theresa Krause and Doris Fischer provide in their paper to the book “Social Credit Rating” an economic perspective on the Chinese government’s rationale for setting up such a system. Transaction cost economics has shown that trust is an important factor for business transactions and economic growth.

“However, China’s rapid economic development and modernization has weakened societal trust, including the traditional trust-building approach via guanxi (interpersonal relationships). Hence,” Theresa Krause and Doris Fischer write in conclusion, “the Chinese government is using the Social Credit System as an alternative approach for trust-building. The system is supposed to strengthen institutional mechanisms and incentivize trustworthy behavior. It can be regarded as an add-on to the currently rather weak legal system and fragmented government enforcement apparatus.”

Theresa Krause is a doctoral candidate at the Chair of China Business and Economics at the Julius Maximilians University of Würzburg and researches the subject of “Compliance and the social credit system in China”. In 2010/11 she worked in NGOs in Shanghai as part of the BMZ’s weltwärts program and then studied in Karlsruhe, Taiwan and London with a focus on economics, politics and China. Before her doctorate, Theresa Krause was a consultant at an international consulting company.

Doris Fischer holds the chair for China Business and Economics at the Julius Maximilians University of Würzburg. She is chairwoman of the board of the German Society for Asian Studies and was chairwoman of the German expert group for the German-Chinese platform innovation on behalf of the BMBF from 2017-2019. She is currently cooperating with colleagues from the Technical University of Munich on a project funded by bidt on the effects of the Chinese social credit system on companies.

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A Case of Rating Repair for a Small Publicly Traded Company

Agencies, Analysts, Bureaus, Raters, Read

A small publicly listed company is a company whose shares are bought and sold on a particular stock market even though turnover or total assets are small in comparison to other listed companies. Every big story starts small. Therefore, among small companies there are often also stock corporations with exceptionally high potential for a good share price development. Small businesses can also be great debtors. Well-managed companies can have excellent credit ratings over long periods. Therefore, such companies are attractive to bond investments, provided they have issued bonds.

The internet is full of investment offers. The disadvantage of this information, however, is that it is often written with the interest of selling securities. Many stock market letters testify to how spectacular sounding promise of returns can be advertised to investors. Alternative ways of obtaining reputable information about good companies are therefore of interest.

The following is an example of how an interesting company can be found and analyzed using the database of a credit reporting agency. Thousands of companies worldwide use Creditsafe to grow their business and reduce exposure to customer credit risk. With Creditsafe it is easy to determine the maximum amount of credit to extend to a company based on company information including, payment history, County Court judgments (CCJs), financial stability, credit scores and limits. Credit managers enjoy to be able to access credit reports for companies anywhere in the world.

A database like that of Creditsafe can be used not only in customer and delivery relationships, but also in all other relationships with company stakeholders. The following example shows, on the one hand, which information can give reason to deal with a company in more detail. On the other hand, the example also shows what can be misunderstood and therefore give rise to a rating repair.

Creditsafe allows to search a database of more than 240 million company credit risk profiles to determine the risk when trading with overseas companies. This information is valuable in identifying good quality companies. In particular, companies can also be found that are particularly attractive for their business partners because they have a good credit rating.

For companies in certain industries, a good credit rating is of crucial importance for business success. For example, in most countries around the world, governments apply very strict standards to the companies with which they work. The creditworthiness is checked for each invitation for tenders. The seriousness and creditworthiness of a company that supports governments in the area of security is particularly important.

The following company is a typical example. The listed company (A6T) artec technologies AG from Diepholz / Germany was founded in 2000 by Thomas Hoffmann and Ingo Hoffmann and develops and produces innovative software and system solutions for the transmission, recording and analysis of video, audio and metadata in networks and the Internet. Since 2000, customers have been using the product platforms MULTIEYE® for video surveillance and security, especially in industrial and governmental environments, and XENTAURIX® for media & broadcast applications for monitoring, streaming, recording and analysis of TV, radio and web livestream content. artec offers its customers a complete service (project planning, commissioning, service & support) both for the standard products and the special developments.

The Creditsafe Rating Model is a predictive analysis tool that uses the latest advanced statistical techniques. It combines commercial and other key information, including trade payment information, public information, key financial ratios, industry sector analysis and other performance indicators which provides you with view of a company.

The business credit score measures the likelihood that a business will remain solvent for the next 12 months. But as the executives behind millions of transactions each year are relying on business credit scores to help them answer questions like: Which vendor should we work with? Can we continue to work with this supplier? What kind of terms can we offer them? and How much funding should can we offer them? Business credits scores are much more than that simple definition.

The Creditsafe Rating Model was created by an analytics team who looked at companies that failed over the last 12 months and assessed the commonalities within these failures. They compiled hundreds of variables and looked at the weighting each variable carried along with the impact each variable had on the failed businesses. They then selected a number of variables which were compiled together to create the modules.

The company stands out at Creditsafe with an excellent credit rating. artec technologies AG (DE01958811) is reported with a very good Credit Index of 1.1, a Risk Score of 97 (on a scale from 0 to 100), the best International Score A and an extremely low Probability of Default of 0.06%.

Initially, the good credit rating seems to be confirmed in the balance sheet data. Compared to most other stock corporations in Germany, the company has a high level of equity both in absolute and relative terms. The solid lines in the graph show the comparative values for the 25% and 75% quartiles as well as the medians. Equity is the capital that remains at a company’s disposal after debts are deducted from the total assets.

It is a comparison of the company based on the industry code (primary) with other companies from the same industry. The analysis has been based on the industry code 82 – Office administrative, office support and other business support activities. The Equity Ratio measures the ratio between equity and the total assets of a company.

The Total Borrowing Ratio measures the ratio between debts and total assets of a company. The Debt Ratio measures the ratio between debts and equity of a company. Other key performance indicators measure liquidity, e.g. the Cash Ratio shows the ratio between liquid assets and short-term debts.

The performance indicators determined by Creditsafe include “Capital Structure” and “Liquidity” as well as “Results & Profitability”.

At this point the information must be confusing. No results are reported. This affects the following key figures in the Creditsafe model:

  • Revenue indicates the value of goods and services a company sold within it’s ordinary business activity during a trading period.
  • Pre Tax Profit Is calculated from the operational result plus financial result plus extraordinary result or from the net income plus the net tax expenditure.
  • Net Profit Ratio measures the ratio between operational result and revenue. So it indicates how much the company actually earned with its achieved revenues.
  • Return on Assets indicates the rate of return for a company’s total assets.
  • Return On Capital Employed shows the rate of return for a company’s capital. In distinction from the Return On Assets Ratio , this indicator considers just the long-term capital.

No values are shown for any of these key figures for the company under consideration here, artec technologies AG. Therefore one has to ask about the reasons why there are no values here.

The report of the Deutsche Bundesbank, the central bank in Germany, is also linked on the homepage of artec technologies. Like Creditsafe, this report confirms that the company has a good credit rating.

As part of Eurosystem monetary policy operations, commercial banks can submit credit claims as collateral for refinancing at the Deutsche Bundesbank. For this, the borrowing enterprises must be considered “eligible”. This is checked in a credit assessment conducted by the Bundesbank. Enterprises may also request a credit assessment. In either case, the Bundesbank provides the enterprise with the results of the credit assessment in their entirety. The aim of Bundesbank’s credit assessment system is to estimate an enterprise’s one-year probability of default (PD) on the basis of financial statements as precisely and reliably as possible. For that purpose, Bundesbank uses a statistical methods to select the ratios which, when combined, are best able to predict an enterprise’s PD.

Credit rating grades of the Deutsche Bundesbank and external credit rating agencies authorised in the Eurosystem are related. This is the example of S&P’s credit ratings:

The data input to Creditsafe can easily be checked under the “Documents” tab. This shows that, as expected, Creditsafe used data from the Federal Gazette. German companies are obliged to publish their financial statements in the Federal Gazette. In the case of the artec technologies AG considered here, however, no data on the income statement was published in the Federal Gazette.

The website of artec technologies also offers the reports of three research companies, which offer in-depth analyzes with all other aspects of stock valuation.

The missing income statement in the credit bureau’s report is due to the legal situation for small, medium and large companies. The size classes (Größenklassen) defined in the HGB serve to regulate accounting and publication for incorporated companies (Kapitalgesellschaft). The larger a capital company is, the stricter the requirements for auditing and the more detail required when disclosing the business data. The four size classes are defined in the HGB for accounting law. They are used for corporations, including the GmbH, the UG and the AG. The size classes are also applied to partnerships without a natural person as a personally liable shareholder (GmbH & Co. KG, UG & Co. KG).

In § 267 HGB, four size classes are defined: micro-company, small company, medium-sized company and large company. For each size class, at least two of the three thresholds listed for each class should not be exceeded. The thresholds are as follows:

  • Balance sheet total (Bilanzsumme),
  • Average number of employees,
  • Revenues (twelve months before the balance sheet date).

The thresholds were changed in 2016 with the German Accounting Directive Implementation Act (Bilanzrichtlinie-Umsetzungsgesetz – BilRUG). The size classes are structured as follows:

Determining FactorMicroSmallMediumLarge
Balance sheet total (Bilanzsumme)350,000 EUR6,000,000 EUR20,000,000 EUR> 20,000,000 EUR
Revenues (12 months before the balance sheet date)700,000 EUR12,000,000 EUR40,000,000 EUR> 40,000,000 EUR
Number of employees on an annual average1050250> 250
artec technologies

Small companies must disclose their balance sheet and their notes. The profit and loss account is not mandatory. In addition, the audition requirement is dropped. In the case of artec technologies AG, the information published is part of the company’s follow-up obligations due to its membership of a transparency standard at the Frankfurt Stock Exchange. The obligations result from these obligations, but not from Section 267 of the German Commercial Code.

The shares of artec technologies AG are traded on the Open Market. The Open Market (Freiverkehr) is a regulated exchange market and not an organised market in the meaning of the German Securities Trading Act (section 2 para. 5 WpHG). Unlike the Regulated Market, which is subject to public law, the Open Market is subject to private law. The General Terms and Conditions of Deutsche Börse AG for the Regulated Open Market (Freiverkehr) on Frankfurter Wertpapierbörse (FWB®) regulate the conditions for admission to and the follow-up duties for securities in the Open Market segment. Admission to the Open Market is possible for securities that are neither admitted to trading on the Regulated Market nor included in trading on the Regulated Market.

Issuers and participants in the Open Market are subject to lower transparency requirements than in the Regulated Market. The Open Market segment is therefore an attractive alternative for both young, growth-oriented small and medium-sized companies such as artec technologies AG.

Since all of this information is public, it is advisable to update the information with the credit reporting agencies. Since these credit bureaus have to enter and update very large amounts of data from many companies in their databases, they rely on the official publications of the companies in the Federal Gazette. If the annual financial statements are reported to the Federal Gazette without a profit and loss account, then by default the data from the income statement are not transferred to the credit reporting agency’s database.

Important key figures about the stock corporation can be viewed free of charge on the website of the Frankfurt Stock Exchange. There are also research reports from SMC, EDISON and GBC. Not to be forgotten are the numerous other information tools, such as price information for technical chart analysis and risk indicators such as those from Moody’s, all of which provide information about artec technologies AG and offer investors certainty in their decisions.

Generally accepted, Bayesian statistics is a theory in the field of statistics based on the Bayesian interpretation of probability where probability expresses a degree of belief in an event. For rating systems, this theory says that if information is missing, a judgment should be made more cautiously than if the required information is available. If only the balance sheet and not the profit and loss account are taken into account in a rating, the result may be a poorer assessment. It is therefore advisable to add missing information.

Statistical credit rating models specify a set of statistical assumptions and processes that represent how the sample data is generated. Statistical credit rating models have a number of parameters that can be modified. For example, the event of a default can be represented as samples from a Bernoulli distribution, which models two possible outcomes. The Bernoulli distribution has a single parameter equal to the probability of one outcome, which in most cases is the probability of filing for insolvency. Devising a good model for the data is central in Bayesian inference. In Bayesian inference, probabilities can be assigned to model parameters. Parameters can be represented as random variables. Bayesian inference uses Bayes’ theorem to update probabilities after more evidence is obtained or known.

In our practical case, these theoretical considerations mean that the lack of information can lead to disadvantages in the evaluation. It is more likely that the missing information will result in a worse rating than with full disclosure. In most cases, a better rating is achieved when more information is disclosed.

In the case of a rating agency recognized under the EU regulation on credit rating agencies that carries out a committee-based rating process, however, the lack of information in the case of unsolicited ratings must not be used as a means of pressure on issuers to urge them to commission a rating process. With a credit reporting agency like Creditsafe, however, this case does not matter. The rating is determined purely mathematically-statistically and based on models without involving a rating committee made up of analysts who could make arbitrary decisions. In addition, there is no fee for the rating that could create a conflict of interest. It therefore remains a sensible way to enable a better evaluation by providing more up-to-date information.

In most cases the credit reporting agency provides the assessed company with its own company report free of charge. An application to receive your own report is sufficient with Creditsafe.. The authorization to receive information must be proven by the company’s employee. However, the company is free to refer business partners and investors to the report of the credit reporting agency and the credit rating contained therein. Similar to the reference to the central bank eligibility certified by the Deutsche Bundesbank, such a reference can strengthen confidence in the company being assessed.

The irritation about missing P&L data in the reports of the credit reporting agency about artec technologies can be easily resolved. For this it is not necessary to expand the disclosure to the Federal Gazette. It is sufficient to provide the credit reporting agency with the certified accounts. A form is available for this that simplifies and standardizes the transfer of data. All financial reports can be found on the company’s German website:

However, it can also be advisable to expand the disclosure to the Federal Gazette. Not only Creditsafe, as in the example, but also many other credit reporting agencies, research houses and, last but not least, financial service providers such as banks and insurance companies access the Federal Gazette. In order to fulfill their various obligations, to check the identity of their business partners and to determine the beneficial owner, they need official data.

PALTURAI is the example of a service that is also used by investors and creditors such as banks and insurance companies to examine the situation at a company. For this purpose, PALTURAI analyzes all reports to registration courts as well as to the Federal Gazette. In order to avoid contradicting information and irritations to the detriment of the rated companies, a consistent approach is recommended. The international data flows and interdependencies in the transfer of information worldwide are more complex today than ever before. The task in the context of a rating repair is to bring about the correction in the most efficient way possible.

With a very good rating like the one for artec technologies, the question arises whether the already very good rating could possibly even be called into question through more transparency. The income statement contains additional information that is taken into account when assessing creditworthiness. For artec technologies, the data that cannot be found in the Federal Gazette has now been added. It shows that the creditworthiness is still rated as very good. The company retains its very good ratings.

crop businessman giving contract to woman to sign

Credit Rating and Residual Debt Insurance

Read, Scores

The question of the extent to which the creditworthiness of the borrower has an impact on the take out of a residual debt insurance is repeatedly the subject of discussions, i.e. whether consumers with lower creditworthiness are sold residual debt insurance more often than consumers with better creditworthiness. The German Federal Financial Supervisory Authority (bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) has examined this question. There was also a survey of credit institutions in Germany.

Before lending, credit institutions have to check the creditworthiness of the respective borrower. This also applies to installment loans to consumers. As a result of their creditworthiness check, the credit institutions classify the borrowers in different credit ratings or clusters. The number and definition of the credit rating levels used differ considerably from one institution to the next. The number of existing credit ratings ranges from three clusters to 20 clusters.

The conditions for consumer loans are predominantly – if not without exception – based on the creditworthiness of the borrower. 15 of the 30 credit institutions surveyed stated that the level of the interest rate on the loan depends on the borrower’s creditworthiness. The higher the risk of default of a borrower, the more expensive the loan becomes, and consequently the loan interest payable increases with decreasing creditworthiness.

In contrast, there are institutions with a uniform interest rate for all credit clusters. Here, the customer’s creditworthiness has no effect on the interest on the loan. At other credit institutions, however, the price of the consumer loan was based on a combination of creditworthiness and duration or a combination of creditworthiness, duration and loan amount. In this respect, the creditworthiness of the customer is regularly a price-determining factor among several factors. It could not be determined that generally borrowers with a lower creditworthiness are more often sold residual debt insurance than borrowers with a better creditworthiness.

An industry-standard procedure could not be determined after evaluating the answers. The credit institutions handle the issue individually and differently. For some of the credit institutions surveyed, it is the case that more residual debt insurance tends to be taken out when creditworthiness declines, while the rate of residual debt insurance contracts tends to be lower in good creditworthiness. After all, this affects nine of the 30 credit institutions surveyed. At the other credit institutions, on the other hand, based on the closing rates requested, there was no evidence that if the creditworthiness of the borrower fell, more residual debt insurance was sold than for borrowers with a better creditworthiness.

There was also no uniform picture on the question of whether taking out payment protection insurance has an impact on the pricing of the consumer loan. At different credit institutions, the borrowers of a credit rating cluster pay the same amount of interest on their loan, regardless of whether they have taken out residual debt insurance or not. At four banks, the interest rate for loans with residual debt insurance was even higher than for loans without residual debt insurance; This means that loans in the same credit rating with residual debt insurance sometimes even cost significantly more than loans without residual debt insurance. In the case of one institute, however, the figures presented showed that a consumer loan with residual debt insurance was cheaper in terms of the loan interest rate than the loan without residual debt insurance.

The reasons for the different influences of residual debt insurance on the price of the loan remained largely open. This also applies to the remarkable result, according to which the nominal interest rate for loans with residual debt insurance at various banks was higher than for loans without residual debt insurance.

However, one credit institution explains that there was no direct causal connection in this respect. Rather, the interest rate for loans at this institute depends on the creditworthiness. However, the connection rate of residual debt insurance for online contracts is much lower than for contracts concluded in the branch; at the same time, the interest rates for consumer loans concluded online are significantly lower than the interest rates for loans concluded in face-to-face business. The different pricing of consumer loans with and without residual debt insurance for borrowers in a credit rating cluster would only be the result of the different pricing of consumer loans in online business and in face-to-face business. It has not been clarified whether this explanatory model can also be used as the basis for the higher pricing of loans with residual debt insurance found at other banks. However, this shows the great importance a detailed price comparison at several institutes can have for consumers.

Trust In a Time of Uncertainty

Criteria, Read

The corona pandemic is far from over. This is especially true if you do not look at it from a purely medical point of view, but also from the perspective of the social and economic consequences. The virus divides the opinions of experts: on the one hand those who warn of the dangers of the virus and are concerned that not enough is being done to combat the spread of the virus, on the other hand those who warn of excessive measures and see the many implications that are not medical but societal, social and economic.

Most people cannot call themselves experts on any of the questions raised. The majority are not medical professionals, sociologists, economists or whatever expertise is still needed to assess the various consequences of both the virus and the measures taken. Those who cannot judge for themselves have to rely on the judgment of others. That requires trust. It is particularly about trusting the decisions of others – politicians, doctors, entrepreneurs and many others who are responsible for their fellow human beings.

The operators of social media are increasingly aware of their responsibility. For example, LinkedIn presents a paper entitled “Trust in a Time of Uncertainty“. It addresses the partnership between companies and their customers and business partners. “Trust is of the utmost importance in uncertain times,” argue the social media experts at LinkedIn.

The Edelman Trust Barometer 2020 shows that despite a strong global economy and also at times of full employment, none of the four social institutions – government, companies, non-governmental organizations (NGOs) and the media – are trusted anymore. The cause of this paradox lies in people’s fears of the future and their role in it. This is a wake-up call for these institutions to find new ways to effectively build trust: to reconcile competence with ethical behavior. Social credit ratings could play a role here. Edelman is based on 34,000 surveys in 28 markets worldwide.

In most countries, confidence was fueled by economic growth. This continues in Asia and the Middle East, but not in developed markets, where income inequality is the more important factor influencing confidence levels today. The majority of respondents here do not believe they will be better off in five years’ time, and more than half of those surveyed around the world believe that capitalism in its current form is doing more harm than good to the world.

Inequality is no longer seen as a gratifying result of freedom, but as a malfunction of capitalism. In this way, no longer state interventions and privileges, but capitalism are made responsible. The injustice of state intervention is neither recognized nor understood. The privileges based on state coercion force competitors out of the market who do not have access to those who know how to privilege certain organizations and companies through regulation and create competitive advantages. In practice, only large or highly profitable companies can afford to actively influence legislation.

Capitalism only thrives on the basis of free decisions by as many people as possible. The freedom to decide about one’s own work results and to weigh between consumption and investment leads to the optimal allocation of resources in capitalism. Edelman shows how far the population in developed countries is now from an elementary understanding of the connection between freedom and capitalism.

According to Edelman, the result is a world of two different trust realities. The informed public – wealthier, educated, and frequent consumers of news – trust any institution far more than the general public. In most markets, less than half of the masses trust their institutions to do the right thing.

In the 2020 Edelman Trust Barometer, the Trust Index is an average of the percent trust in NGOs, corporations, government and the media. NGOs, companies, government and the media enjoy the greatest trust in the world among the people of the People’s Republic of China. In the overall population of China, trust increased in 2020 compared to the previous year (from 79% to 82%). The opposite is true in countries such as the USA (from 49% to 47%) or the United Kingdom (from 43% to 42%).

These results can no longer be explained solely with restrictions on the freedom of the press and freedom of expression in the People’s Republic of China. Because of the large population, many Chinese families have a wide network of contacts around the world. The Chinese are among the people who love to travel. The economic rise allows millions of Chinese to travel to all countries in the world. In Germany, too, travel opportunities for the Chinese were not restricted by the Chinese government, but rather by a restrictive German visa policy. The level of knowledge of educated Chinese about the conditions in Germany is much better than that of Germans in China. China’s leading position in terms of popular trust in government, businesses and organizations therefore requires further research.

Trust is one dimension of a company’s reputation. This reputation has been systematically measured in many pilot projects in China since 2014 and combined in ratings. After initial mistakes, the corona crisis brought the Chinese leadership, among other things. therefore faster under control, as it relied on help from companies and organizations that have good ratings. The crisis is not only about financial stability, but also about the trustworthiness of socially responsible behavior. Therefore, social credit ratings were used to select well-reputed companies. More on this and on many other aspects of social credit ratings in the Springer-Verlag book.

How the Authority Determines Whether a Board Member Has Sufficient Time

Certifications, Read, Registrations, Regulations

Within the scope of the Banking Act, the notification of intent to appoint a management board member must include the material facts for an assessment of whether sufficient time is available for the performance of the related duties. Board members are required to provide detailed information on how they spend their time. It is at the discretion of the authority to decide to what extent the reported time is spent privately or professionally.

The German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) provides information on what information has to be provided on how a board member spends his time. It is laid down in its Guidance Notice on management board members. This is pursuant to the German Banking Act (Kreditwesengesetz – KWG), the German Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz – ZAG) and the German Capital Investment Code (Kapitalanlagegesetzbuch – KAGB).

This information has to be provided on the form “Details of reputation, available time and additional mandates”. As a rule, BaFin assumes that a person will only accept an appointment as a management board member if he or she considers himself or herself capable of fulfilling the time requirements associated with this activity. Accordingly, this person has to conduct an overall review of all of his or her current activities and mandates and estimate the amount of time associated with this new activity.

The following guidance notes shall be complied with in notifying BaFin of whether this person has sufficient time. All activities and mandates, including the mandate subject to notification, are to be included. The time required to perform these activities and mandates is to be estimated and disclosed to BaFin as such.

All of the management board member’s full-time and part-time professional activities must be indicated. All mandates in administrative and supervisory bodies must also be included. The amount of time required for a mandate on an advisory council must be indicated if the duties and powers of this advisory council are analogous to those of an administrative or supervisory body and are regulated by law or in the articles of association or the partnership agreement.

In the case of mandates in administrative and supervisory bodies, in addition to

  • the time needed to take part in meetings,
  • the time required for meeting preparation and
  • postmeeting work

is to be taken into account, as is participation in committees and

  • travel, where applicable.

The assessment shall also reflect the fact that an activity as a member of an administrative or supervisory body will also take up time outside the scope of regular meetings and that this time requirement may suddenly increase if the undertaking is faced with extraordinary situations.

As a rule, purely voluntary positions and activities which form part of the person’s private life need not be included. The private life of the board member might be carefully analyzed if there is any doubt about his ability to devote sufficient time to the task assigned to him.

A management board member shall report without delay any commencement and any termination of an activity as a management board member of another undertaking or as a member of the administrative or supervisory body of another undertaking. This notification is necessary so that BaFin is able to regularly assess compliance with the limitations of mandates under supervisory law as well as the need for the person to have sufficient time available. This notification obligation applies irrespective of whether or not individual mandates are included in the maximum number of mandates permitted.

Mandates on non-mandatory supervisory boards must also be indicated. Mandates on advisory councils must be indicated if the duties and powers of the advisory council are analogous to those of an administrative or supervisory body and are regulated by law or in the articles of association or the partnership agreement. It is also irrelevant for the notification obligation whether an activity is part-time or full-time in nature.

Where multiple mandates held by the management board member are considered to be a single mandate, this has to be documented by means of supporting statements or documents. In case of mandates held as a representative of the German federal government or the German federal states, the relevant basis in law has to be indicated or the relevant articles of association are to be appended. For an assessment of whether the member of the administrative or supervisory body has sufficient time available, the notification must provide relevant details, including the new mandate

A management board member shall report without delay any acquisition or disposal of a direct participating interest in an undertaking and any changes in the amount of this participating interest. A direct participating interest shall be deemed to be the holding of at least 25 per cent of the undertaking’s capital.

BaFin points out that a violation of the management board member’s notification obligations under the Banking Act and the Capital Investment Code will constitute an administrative offence which may result in an administrative fine of up to one hundred thousand euros. Violation of the notification requirement means failing to make a notification or making such notification incorrectly, incompletely or not in due time.

Management Board Members Must Submit a Certificate of Good Conduct for Official Purposes

Certifications, Read, Registrations, Regulations

Depending on their nationality and place of residence, management board members must submit the original copy of a “certificate of good conduct for presentation to a German authority (certificate of good conduct for official purposes)” (document type “O”) issued by the Federal Office of Justice (Bundesamt für Justiz – BfJ). This document is issued in accordance with section 30 (5) of the German Federal Central Register Act (Bundeszentralregistergesetz – BZRG). Alternatively, it could be a “European certificate of good conduct for presentation to a German authority” in accordance with sections 30 (5) and 30b of the BZRG or certificates of good conduct equivalent to those named above, or certifications of reputation assessments performed by supervisory authorities in the country of residence after consultation with the relevant division of BaFin (“equivalent documents”).

The German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) provides information on what certificate is used to establish a bank management board member’s reputation rating in its Guidance Notice on management board members. This is pursuant to the German Banking Act (Kreditwesengesetz – KWG), the German Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz – ZAG) and the German Capital Investment Code (Kapitalanlagegesetzbuch – KAGB).

Management board members who have resided in different countries in the previous ten years must submit certificates of good conduct and relevant documents from each country. The relevant division of BaFin has to be provided with detailed information regarding any legal obstacles to their furnishment. If the relevant documents are already available, they have to be submitted to BaFin together with the other documents to be appended to the notification of intent. However, subsequent submission is also possible.

In countries in which certificates of good conduct are issued by a public agency, other documents may not be used as a substitute. The “certificate of good conduct for presentation to a German authority” should not be confused with the “extended certificate of good conduct” referred to in section 30a of the BZRG.

Section 30a of the BZRG determines the following: An extended certificate of good conduct is issued to a person on request, if the grant is provided for in statutory provisions with reference to this provision or if this certificate of good conduct is required for professional or voluntary supervision, care, education or training of minors or an activity which, in a manner comparable to letter a, is suitable for making contact with minors. Anyone who applies for an extended certificate of good conduct must submit a written request in which the person who requests the extended certificate of good conduct from the applicant confirms that the requirements are met.

Every person who has reached the age of 14 is given a certificate on the contents of the register concerning them on request (certificate of good conduct). If they have legal representation, this is also entitled to apply. The application must be submitted in writing to the registration authority in person or with an officially or publicly certified signature. When submitting the application, the identity and, in the case of legal representation, the power of representation must be proven. The applicant and their legal representative cannot be represented by an authorized representative when submitting the application. The registration authority receives the fee for the certificate of good conduct, keeps two fifths of it and pays the remaining amount to the federal treasury.

If the person making the application lives outside Germany, they can submit the application directly to the registry authority. Sending the certificate of good conduct is only permitted to the applicant. If the certificate of good conduct is requested to be presented to an authority, it must be sent to the authority immediately. The authority must allow the applicant to inspect the certificate of good conduct upon request. The applicant can demand that the certificate of good conduct, if it contains entries, is first sent to a local court designated by him for inspection by him. The registration authority must inform the applicant of this possibility in the cases in which the application is submitted to them. The district court may only grant the applicant person access to it personally. After inspection, the certificate of good conduct is to be forwarded to the authority or, if the applicant objects, to be destroyed by the local court. A foreign applicant can demand that the certificate of good conduct, if it contains entries, is first sent to an official representation of the Federal Republic of Germany designated by him for inspection.

The management board member must submit a request for a “certificate of good conduct for presentation to a German authority” and a “European certificate of good conduct for presentation to a German authority” to his or her local registration office (Meldebehörde) (section 30 (2) sentence 1 of the BZRG) or electronically to the Federal Office of Justice (section 30c of the BZRG). German nationals who reside outside the Federal Republic of Germany may apply directly to the Federal Office of Justice as the registration authority (section 30 (3) sentence 1 of the BZRG).

To allow BaFin to allocate the certificates of good conduct which it receives to the undertaking to which the relevant management board member is to be appointed, the name of the notifying undertaking and the BAK number have to be indicated as the reference. The BAK number is a six-digit number which BaFin assigns to each institution for internal classification purposes. It forms part of the BaFin reference number under which correspondence with an institution is registered and is listed in BaFin’s database of undertakings as the “ID”. BaFin is responsible for issuing and publishing a BAK number. The BAK number of an institute can be found on the website of the Federal Financial Supervisory Authority (www.bafin.de).

The certificate of good conduct for official purposes must be up-to-date, i.e. at the time of notification of intent it may not be more than three months old. The date of the document’s issue will be key for this purpose.

In the event that a certificate of good conduct is to be used within BaFin for further checks as to the reputation of a person, this document may not be more than twelve months old. The Federal Office of Justice will send both the “certificate of good conduct for presentation to a German authority” and the “European certificate of good conduct for presentation to a German authority” directly to BaFin. There is no need to request additional copies for the Deutsche Bundesbank or the auditing association, in the case of credit institutions that are members of one.

Data for Bank Management Board Member’s Reputation Rating

Certifications, Criteria, Read, Registrations, Regulations

The German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) provides some insights into what kind of data is used to establish a bank management board member’s reputation rating in its Guidance Notice on management board members. This is pursuant to the German Banking Act (Kreditwesengesetz – KWG), the German Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz – ZAG) and the German Capital Investment Code (Kapitalanlagegesetzbuch – KAGB).

On the form “Details of reputation, available time and additional mandates“, the management board member has to issue a personally signed and dated declaration providing information on any criminal proceedings and proceedings for administrative offences, decisions under trade law and insolvency or enforcement proceedings. The declaration need not include previously pending criminal proceedings that were terminated for lack of sufficient evidence to support the suspicion of a criminal offence. The same is true in the event that the proceedings were terminated because of a procedural bar.

The declaration need not include previously pending criminal proceedings which resulted in an acquittal or by virtue of which an entry in the Federal Central Criminal Register (Bundeszentralregister – BZR) was deleted or cancelled, or that are not required to be disclosed according to section 53 of the German Federal Central Register Act (Bundeszentralregistergesetz – BZRG).

Section 53 of the Act on the Central Criminal Register and the Educative Measures Register determines convicted person’s duty of disclosure: Convicted persons may refer to themselves as having no previous convictions and need not disclose the facts on which a conviction was based if the conviction does not have to be included in the certificate of good conduct or only in a certificate of good conduct in accordance with section 32 (3) or (4) BZR or is to be deleted. Insofar as courts or authorities have a right to the unrestricted disclosure of information, convicted persons may derive no rights from subsection (1) no. 1 vis-à-vis them if they are instructed about this fact.

Entries which must be deleted from the Central Trade and Industry Register under section 153 of the German Industrial Code (Gewerbeordnung – GewO) need not be mentioned. Section 153 determines that certain entries have to be deleted after a period of time of three years if the amount of the fine does not exceed 300 euros or five years in the other cases. If the register contains several entries, the deletion of an entry is only permissible if the period has expired for all entries. An entry to be deleted will be removed from the register one year after the requirements for the deletion have been met. During this time, no information may be given about the entry. If the entry in the register has been deleted or if it is to be deleted, the administrative offense and the fine decision may no longer be used to the detriment of the person concerned. This does not apply if the person concerned applies for admission to a trade or other economic enterprise, if the admission would otherwise lead to a considerable risk to the general public, or if the person concerned applies for the lifting of a business or other economic enterprise that prohibits the exercise of the trade Decision requested.

According to these stipulations, entries which must be deleted from the Central Trade and Industry Register under section 153 GewO need not be mentioned. On the other hand, criminal proceedings terminated under sections 153 and 153a of the German Code of Criminal Procedure (Strafprozessordnung – StPO) have to be indicated.

A termination under these provisions will not eliminate the assumption of innocence under criminal law; however, irrespective of this the circumstances of the case may give rise to indications for a lack of reputation, particularly in case of proceedings associated with punishable violations of relevant supervisory law, property- or insolvency-related criminal offences or tax offences.

Similar situations in other jurisdictions also have to be indicated. In case of doubt, the relevant division of BaFin should be contacted. These details have to be complete and accurate. In the case of any notifiable proceedings, copies of the rulings, decisions, sanctions, notices or other relevant documents have to be appended. BaFin reserves the right to obtain further information from the competent authorities, where necessary

For an assessment of possible conflicts of interest, on the form “Details of reputation, available time and additional mandates” the management board member must also declare any familial relationships with members of the management and the members of the administrative or supervisory body, both for the notifying undertaking and for its parent undertaking or subsidiary. If no details are provided on the form, this will be deemed a statement of “nil”.

On the form “Details of reputation, available time and additional mandates”, business relationships which could result in a certain degree of commercial dependence on the notifying undertaking have to be indicated as follows: Management board member, undertaking which is managed by the management board member, close relatives of the management board member = spouses, registered life partners, partners in a long-term relationship, children, parents, other relatives who belong to the household of the member. The relationships to the notifying undertaking, parent undertaking of the notifying undertaking and subsidiary of the notifying undertaking have to be disclosed. The nature of this relationship and the manner in which it is conducted have to be described. If no details are provided on the form, this will be deemed a statement of “nil”.

man in blue suit

Professional and Personal Requirements for Persons Appointed as Management Board Members

Certifications, Compliances, Read, Registrations, Regulations

The Federal Financial Supervisory Authority of Germany (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) provided a Guidance Notice on management board members pursuant to the German Banking Act (Kreditwesengesetz – KWG), the German Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz – ZAG) and the German Capital Investment Code (Kapitalanlagegesetzbuch – KAGB). The following introduces the approach how to check compliance with the law in the context of a forensic rating of financial institutions.

The methodology applies to all credit institutions and financial services institutions supervised by Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht- BaFin) under the Banking Act (Gesetz über das Kreditwesen – KWG) and all payment and electronic money institutions supervised by BaFin under the Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz – ZAG). It is also intended for undertakings supervised by BaFin under the Capital Investment Code (Kapitalanlagegesetzbuch – KAGB). The Banking Act, the Payment Services Supervision Act and the Capital Investment Code impose stringent requirements regarding the qualifications of a management board member. The major significance of these requirements is reflected in the fact that it is the claim of BaFin to issue a licence only when all conditions are met to conduct banking business and e-money business and to provide financial services and payment services.  The licences under the Investment Code, too, are only issued if the management board members fulfil the professional and personal requirements stipulated in the respective law. BaFin may withdraw this licence if these requirements are no longer fulfilled.

The European provisions were enshrined in the Banking Act through the ” Act on the Implementation of the Directive 2013/36/EU on Access to the Activity of Credit Institutions and the Prudential Supervision of Credit Institutions and Investment Firms and on the Regulatory Alignment to the Regulation (EU) No 575/2013 on Prudential Requirements for Credit Institutions and Investment Firms” (Gesetz zur Umsetzung der Richtlinie 2013/36/EU über den Zugang zur Tätigkeit von Kreditinstituten und die Beaufsichtigung von Kreditinstituten und Wertpapierfirmen und zur Anpassung des Aufsichtsrechts an die Verordnung (EU) Nr. 575/2013 über Aufsichtsanforderungen an Kreditinstitute und Wertpapierfirmen – CRD IVUmsetzungsgesetz) of 28 August 2013, Federal Law Gazette I p. 3395, and the ” Act Amending Laws Relating to the Financial Market” (Gesetz zur Anpassung von Gesetzen auf dem Gebiet des Finanzmarktes – FinMarktAnpG) of 15 July 2014, Federal Law Gazette I p. 934. Moreover, the recommendations of the European Banking Authority “EBA Guidelines on Internal Governance” (GL 44) of 27 September 2011 and the “EBA Guidelines on the Assessment of the Suitability of Members of the Management Body and Key Function Holders” of 22 November 2012 have been transposed into German law. The second edition of this Guidance Notice outlines the professional and personal requirements for persons appointed as management board members under the relevant supervisory legislation. It provides an overview of the associated notification obligations, including the documents which must be submitted. It considers in detail the expanded requirements for management board members resulting from the changes to the Banking Act.

The credit institutions which are members of a cooperative auditing association (genossenschaftlicher Prüfungsverband) or which are audited by the auditing body of a savings bank and giro association (Sparkassen- und Giroverband) are to send the notification and any documents to be appended via their association, together with an extra copy intended for that association. The role of the associations must be observed in Germany.

Since 4 November 2014, the European Central Bank (ECB) has served as the supervisory authority for significant German credit institutions within the scope of the Single Supervisory Mechanism (SSM). The ECB supervises these significant institutions on the basis of national supervisory legislation, except where European law is directly applicable. Significant institutions submit notifications concerning the appointment and resignation of management board members – including all of the documents to be appended – to BaFin and the Deutsche Bundesbank.

The European Central Bank is responsible for assessing the professional suitability, the reputation and the available time of a management board member and will notify the institution of the result of its assessment directly. This assessment is made on the basis of the provisions of the Banking Act. However, the ECB is not bound by an existing national interpretation or administrative practice.

The European Central Bank, BaFin and the Deutsche Bundesbank shall be notified of other activities of a management board member of a significant institution and of any direct participating interests. The notifications and all documents and declarations to be appended must be submitted in German. The following deviating provisions apply to significant institutions directly by the ECB. Where documents are not issued in German, a certified translation or a translation prepared by a publicly appointed or sworn interpreter or translator will be required in addition to the original version. The relevant BaFin division may waive the translation of English-language documents. Significant institutions directly supervised by the ECB may submit the notification as well as all documents to be appended in either German or in English. The notifications prescribed by the Banking Act, the Payment Services Supervision Act and the Capital Investment Code shall be submitted without delay. As a rule, BaFin will no longer assume that a notification has been submitted without delay if a period of four weeks has been exceeded following the decision made by the relevant body. BaFin may require further documents and information if this appears necessary in an individual case. BaFin will not assume the costs associated with the required documents.

On their websites, BaFin and the Deutsche Bundesbank provide the following forms which are to be used for the individual notifications and for the declarations to be made.

Banking Act

  • Personnel changes relating to management board members,
  • Details of reputation, available time and additional mandates,
    • Declaration concerning criminal proceedings and proceedings for administrative offences, decisions under trade law and insolvency or enforcement proceedings,
    • Declaration concerning familial relationships,
    • Declaration concerning business relationships,
    • Details of additional mandates as a management board member or as a member of administrative and supervisory bodies,
    • Details of available time,
  • Secondary activities of management board members,
  • Participating interests of management board members.

Capital Investment Code

  • Personnel changes relating to management board members,
  • Details of reputation,
    • Declaration concerning criminal proceedings and proceedings for administrative offences, decisions under trade law and insolvency or enforcement proceedings,
    • Declaration concerning familial relationships,
    • Declaration concerning business relationships,
  • Secondary activities of management board members,
  • Participating interests of management board members.

Payment Services Supervision Act

  • Details of reputation,
  • Secondary activities of management board members,
  • Participating interests of management board members,

An intention to make an appointment, its realisation, its withdrawal (Banking Act) or a change of this intention to appoint (Banking Act) a management board member shall be reported without delay. The institution or the KAGB undertaking must submit this notification. Management board members within the meaning of the Banking Act and the Payment Services Supervision Act are those natural persons who are appointed according to law, articles of association, articles of incorporation or a partnership agreement to manage the business of and represent an institution organized in the form of a legal person or a commercial partnership. Management board members within the meaning of the Capital Investment Code are those natural persons who are appointed according to law, articles of association, articles of incorporation or a partnership agreement to manage the business of and represent a capital management company as well as natural persons who actually manage the business of the capital management company without being formally appointed as management board members. This notification obligation also applies for the appointment of an acting management board member to fulfil the function of a management board member if the latter is unable to do so.

In its long-standing administrative practice, BaFin has refrained from forwarding appointment notifications submitted by the relevant association of auditors for credit cooperatives’ board members serving in an honorary capacity. However, notice must be provided of an intention to appoint a part-time management board member. Already the intention to appoint a management board member is subject to notification.

Basic documents

The following documents/declarations have to be appended to the notification:

  • Curriculum vitae,
  • Details of management board members’ reputation,
  • “Certificate of good conduct for presentation to a German authority”, “European certificate of good conduct for presentation to a German authority” or “equivalent documents” from another country,
  • Excerpt from the Central Trade and Industry Register,
  • Details of additional mandates as a management board member and in administrative and supervisory bodies,
  • Details of available time.


By submitting the information and declarations from the management board member which have to be appended to the notification, the notifying institution or the notifying KAGB undertaking confirms that the information submitted is accurate to the best of its knowledge. If the management board member who is to be appointed has been, or is already a management board member or a member of the administrative or supervisory body of an undertaking supervised by BaFin, all of the documents/declarations to be presented in connection with this notification have to be re-submitted. BaFin may waive this requirement in individual cases.

A curriculum vitae has to be appended to the notification of intent. This curriculum vitae must be complete and truthful and must be personally signed and dated. The curriculum vitae shall focus primarily on the positions held during the management board member’s professional career. For these individual positions, the CV has to indicate not only the year, but also the month in which this position began or ended. In the description of positions held, in particular details of this person’s powers of representation, his or her internal decision-making powers and the divisions within the undertaking overseen by him or her shall be provided. Job references for employment positions within the last three years prior to submission of the notification have to be appended to the curriculum vitae, if available. Within the scope of the Capital Investment Code and the Payment Services Supervision Act, job references must only be submitted as required by BaFin. The curriculum vitae has to include the following details:

  • surname, all first names,
  • birth namedate of birth,
  • place of birth,
  • place of residence,
  • nationality,
  • a detailed description of relevant education and training,
  • the names of all undertakings for which the management board member currently works or has previously worked,
  • details of the nature and duration of the relevant activity, including secondary
    activities.

If a management board member has resided outside Germany within the last ten years, the period and country in question must be indicated. If the principal place of residence of the management board member and his or her place of work did not lie within the same country, this also has to be indicated. This information is relevant for BaFin insofar as this affects the register excerpts which must be submitted.

The social credit rating is comprehensively checked: Details of the management board member’s reputation, a “Certificate of good conduct for presentation to a German authority”, “European certificate of good conduct for presentation to a German authority” or “equivalent documents” from another country, excerpt from the Central Trade and Industry Register, details of additional mandates as a management board member or in administrative or supervisory bodies (Banking Act), details of available time (Banking Act). Comprehensive additional regulations must be observed for these points.

auto automobile automotive bentley

Credit Rating Criteria for Leasing Companies

Agencies, Criteria, Read

Under the umbrella of the Auditing Association of German BanksGBB-Rating Gesellschaft für Bonitätsbeurteil mbH (hereinafter referred to as “GBB-Rating”) provides long-term credit ratings of leasing companies. GBB-Rating has published criteria for the rating of leasing companies in German on its website. Unfortunately there was (August 23, 2020) no English translation. In the following are summarized some of their criteria for rating leasing companies. Please do not confuse the representation with an official translation. The methodology is reported here in extracts. The rating agencies supervised by ESMA are obliged to disclose their methodologies, but not necessarily in English.

Ratings are based on an analysis and evaluation of essential quantitative and qualitative aspects of the financial and business profile of each leasing company. This is done by means of a system of indicators and criteria. The rating result is condensed into 22 classes (AAA to D) and expanded to include a rating outlook.

The rating outlook – positive, stable, negative and indefinite – is an early indicator of the direction in which a rating is likely to develop within the next 12 to 24 months. The rating outlook goes beyond the 12-month statement of the rating class, as it shows the development expected within the next 24 months based on the information available.

The focus of the rating process is the determination of an overall value (point value process) as a creditworthiness indicator that determines the allocation to the corresponding class. This results from weighted point contributions from the aggregated parameters financial profile and business profile. The procedure is basically geared towards assessing legally independent companies. Adjustments can be made to take appropriate account of business, legal or other particularities. GBB-Rating distinguishes between main criteria and characteristics. Analysis, assessment and evaluation of the key figures and criteria are carried out on the basis of the financial and business profile, taking into account defined internal rules and procedures. Intermediate scores arising from the analysis of the financial and business profiles are finally weighted and aggregated to obtain an overall score. Given the forward-looking nature of the business profile, it carries greater weight in the rating result.

The financial profile is assessed in a quantitative analysis of the annual financial statements based on indicators of the earnings position and capital position. In view of the very limited information furnished by the annual financial statements of leasing companies, the analysis also gives consideration to intrinsic value. Depending on the timing of the rating, current interim figures are analyzed as well.

The key figure system of GBB-Rating is based on the two essential aspects of the financial strength of a company – sustainable profitability and the substance for covering risks. A detailed rating manual supports the analysts in evaluating the financial data. In addition to taking certified figures from the annual financial statements into account in the key figure system, quarterly figures, budget figures and figures from internal reporting are included in the assessment of the financial profile. Because of the significantly limited informative value of the annual financial statements for leasing companies, the analysis must supplement them with the net asset value calculation according to the scheme of the Bundesverband Deutscher Leasing-Unternehmen e.V. (BDL, the Federal Association of German Leasing Companies) in order to record the economic equity and adequately depict the profit or loss for the period. This way the asynchronous expense and income trends typical in the leasing industry can be assessed, despite the strict periodization requirement according to the HGB principles.

The earnings situation is represented by seven key figures. In addition to gross and net profitability, these include the return on operating performance and cost (coverage) ratios. The key figures are translated into point values using individual transformation curves (polynomials). The transformed point values are subject to a specific weighting and are therefore included in the evaluation of the earnings situation to different degrees. It is not known how exactly the polynomials are calculated in GBB-Rating.

In the case of gross profitability, the return as the sum of the gross profit and the change in net asset value is compared with the risk potential in the form of the adjusted total assets. The gross profit is the result of the sales revenue plus the result from the sale of rental assets less all material and leasing expenses (including refinancing interest). In order for a result that is consistent with the period to be determined, the change in the net asset value must be added before administrative and risk costs (gross net asset value), because these costs do not reduce the gross profit. In the denominator, the main correction items of the balance sheet total are all items that prove the passing on of counterparty risks, especially the deferred income from non-recourse forfaiting (minus a margin for the remaining verity risk) and special rental payments. Forfaiting in the double-decker model, however, is not taken into account as a deduction, since the economic risk remains with the leasing company.

In the case of net profitability, the sum of the ordinary overall result and the change in the net asset value is compared with the risk potential in the form of the adjusted balance sheet total. The ordinary overall result is the sustainable overall result before taxes, adjusted for extraordinary earnings components, including the investment result. In order for a result that is consistent and consistent with the period to be determined, the change in the intrinsic value after administration and risk costs (net intrinsic value) must be added. In the denominator, the main correction items of the balance sheet total are all items that prove the passing on of counterparty risks, especially the deferred income from non-recourse forfaiting (minus a margin for the remaining verity risk) and special rental payments. Forfaiting in the double-decker model, however, is not taken into account as a deduction, since the economic risk remains with the leasing company. The operating performance return is compared to the sum of the ordinary operating result and the change in the net asset value of the operating performance. The ordinary operating result is the sustainable operating result before taxes adjusted for extraordinary earnings components. In order for a result that is consistent and consistent with the period to be determined, the change in the net asset value after administration and risk costs (net asset value) must be added. The operating performance is the result of the sales revenue plus the result from the sale of leased assets less refinancing interest.

The necessary amount of gross income is determined by the performance efficiency (operating costs) and the company’s willingness to take risks (risk costs). Both cost blocks are set in relation to the operating performance (operating and risk cost ratio) or to the value added as the sum of gross profit and change in the (gross) asset value before administration and risk costs (cost and risk-income ratio) and can therefore suit different business structures depict.

The capital ratios are represented by three key figures. These include two informational key figures and a rating-relevant figure. The key figures are translated into point values ​​using individual transformation curves (polynomials). The leasing company’s own liability is assessed using the modified equity ratio, which combines the equity and forfaiting ratio. Equity is set in relation to the company’s risk potential. The adjusted liability capital is the by non-assessable assets such as outstanding deposits adjusted equity. Without the equity capital already fully taken into account, only 50% of the net asset value is included in order to ensure that the taxed equity capital is treated equally with the untaxed net asset value. In the denominator, the main correction items of the balance sheet total are all items that prove the passing on of counterparty risks, especially the deferred income from non-recourse forfaiting (minus a margin for the remaining verity risk) and special rental payments. Forfaiting in the double-decker model, on the other hand, is not considered as a deduction, since the economic risk remains with the leasing company.

The development of the sustainable earnings situation, the sustainable capital ratios, the net asset value calculation as well as the particularities of the accounting can be assessed in the criterion “further aspects of the financial profile”. In addition to taking certified figures from the annual financial statements into account in the key figure system, quarterly figures, budget figures and figures from internal reporting are included. In order to assess a sustainable earnings situation, there is an expanded consideration of earnings factors, taking into account current developments and findings. With the aim of adequately reflecting the earnings position at the time of the rating and including deviations from the sustainable trend in business development in the rating result, the sustainable earnings position is supplemented by the analysis of current interim figures and budget figures. Changes in capital resources or structure during the year can be taken into account. Because of the significantly limited informative value of the annual financial statements for leasing companies, the analysis must supplement them with the net asset value calculation according to the BDL scheme in order to record the economic equity and adequately depict the profit or loss for the period.

The assessment of the business profile is based on an analysis of primarily qualitative and future-oriented external and internal influencing factors. Supporting key figures enable a plausibility check of the analyzes and evaluations. The assessment features are integrated according to a specified standard, which can be adapted to the specifics of the business model. In this way, the necessary objectivity and, at the same time, the necessary flexibility to be able to adequately take into account specific features are guaranteed.

The business profile is evaluated by analyzing chiefly qualitative and forward-looking external and internal influencing factors. The main criteria are market factors, organizational aspects and the risk profile. To facilitate an objective assessment, these criteria are subdivided into individual attributes. In particular when the business profile is being examined, the particularities of the individual leasing company are assessed, such as its asset portfolio and contract structures.

The business profile of the leasing rating method distinguishes the said three main criteria market, organization and risk profile. Each of these three main criteria is divided into assessment features and individual criteria. The criteria are based on fixed assessment scales. The individual assessment via the assessment scale is transformed into a point value. Only when the leading analyst and the second analyst have analyzed and assessed or checked all the criteria does the weighted point values ​​result in a decision-making overall “business profile” value. Descriptions, procedures and framework specifications for evaluation are available for all criteria in a detailed manual. The manual is subjected to a detailed check once a year to ensure that it is complete and up to date. The leading analyst uses this manual as a guide. Deviations from the requirements can only be made in justified exceptional cases after consultation with the following rating bodies. The specifications in the manual are used by the second analyst in the “Data & Controlling” department to check the plausibility of the evaluations.

The main criterion “market” is geared towards a medium to long-term time horizon. As part of an analysis of the market attractiveness, the market or markets in which the leasing company operates are analyzed (macroeconomic view). In addition to considerations of the size of the individual markets, aspects of market growth and profitability, which are determined for example by factors such as the intensity of competition, customer structures, market entry barriers, providers or substitutes, are taken into account in the assessment. Exogenous factors such as the economic development or changes in legal and regulatory provisions or the development of case law on special topics are of no insignificant importance. In addition to the leasing companies’ own statements, research by GBB-Rating is included in the assessments. In the course of a microeconomic consideration, aspects of the individual competitive position are analyzed. In this context, aspects of the market position are included in the assessment as well as the structure and scope of the range of products and services. Another important dimension is the sales policy and the associated sales channels used. A harmonious focus on the market, taking into account the available resources, an acceptable risk appetite and the specific strategic positioning (e.g. cost leadership, quality leadership, niche providers) are essential factors for a long-term successful competitive position. The strategic process can be seen as a direct bridge between the market and the organization. Its consideration includes the company’s internal processes that were set up for strategy development, implementation and monitoring.

The main criterion “organization” is based on a generally medium-term time horizon. As part of the considerations on more general criteria of corporate management, aspects such as the design of the organizational structure and personnel structure and policy are analyzed. The composition e.g. B. the supervisory body is taken into account as well as existing succession plans or potential or actual personnel dependencies or bottlenecks. The areas of controlling and planning as well as the design of accounting and IT are also examined. As part of the analysis of specific corporate management criteria, the design of the internal control systems is subjected to an assessment. The evaluation and analysis is based on the requirements of the current minimum regulatory requirements, particularly in terms of risk management. In addition to address risk management, z. B. the design and functionality of the internal audit as well as the concept for determining the risk-bearing capacity are considered.

The main criterion “risk profile” plays a crucial role when leasing companies are being rated. When the risk profile is being assessed, an inventory of all the credit, market and operational risks is produced. The experience accumulated by GBB-Rating indicates that the most critical risk types are those relating to counterparties, assets and interest rate changes. Following changes to the tax depreciation rules, accounting risks (e.g. loss-free measurement of leasing assets) are also gaining in importance.

The risk profile criterion is basically geared towards a rather short to medium-term time horizon. The risk profile is of paramount importance. When assessing the risk situation, an inventory of all credit, market and operational risks is carried out. GBB-Rating’s experience shows that counterparty, property and interest rate risks are usually of the greatest importance. Depending on the tax depreciation conditions, balance sheet risks (e.g. loss-free valuation of leased assets) also play a major role. In addition to assessing the risk situation, the analyzes of the risk profile also include a consideration of the generation of (liable) capital in terms of capital procurement potential (e.g. direct access to the capital market, retention policy) and the potential for support from the shareholder (s).

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The rating result consists of the assignment to a rating class, the justification of the rating and the rating outlook. A rating class reflects the condensed credit rating on the GBB-Rating rating scale; it generally covers a forecast period of 12 months. The findings of the analysis with regard to the financial and business profile are condensed by the analysts into a proposal for the rating result, which is the international known notation (22 rating classes from AAA to D). In the justification for the rating, essential rating-sensitive factors or drivers are shown, which can influence the rating result positively or negatively in the medium term. The drivers of the rating result are analyzed and presented as part of a consideration of the essential areas and criteria with regard to their sensitivity to the rating result.

Leasing Company Rating

Agencies, Associations, Methodologies, Read, Systems

Leasing companies have been analyzed by leading US credit rating agencies for decades. In addition to these rating agencies, there are other rating approaches for leasing companies. Three of these are briefly presented here. The first relates to a joint initiative by Landesbanken and other credit institutions to operate bank-internal system for rating leasing companies. The second is the offer from a company from the organization of the Association of German Banks. The third is the rating offer from a Bulgarian rating agency, which also rates German banks.

RSU Rating Service Unit

The history of RSU Rating Service Unit GmbH & Co. KG started in 2001, when German Landesbanken and the DekaBank launched a joint project for the development of internal rating systems, to satisfy the regulatory requirements for what is referred to as the Internal Ratings-based Approach (IRBA). During 2002 through 2003, an interdisciplinary project teams developed the methodology for rating ten different exposure classes. Once ready for use, it was integrated into the “LB-Rating” application. The joint effort allowed to draw on the experience and the portfolios of all RSU partners. In December 2003 the Landesbanken became shareholders that participated in the project and/or their legal successors.

The rating indicates a Probability of Default (PD). The main measure of the quality of a rating system is what RSU refers to as “discriminatory power”, i. e. the system’s ability to distinguish between high-risk and low-risk obligors. Some rating systems also determine the Loss Given Default ratio (LGD), which is another area where accuracy is crucial. Essentially, RSU’s methodological work focuses on the validation of the PD and LGD estimates computed. This involves, in particular, considering the defaults actually observed. At the same time, ratings are kept strictly confidential and data protection is ensured.

When developing rating systems, models for estimating probabilities of default and loss ratios are created based on historical information and solid expertise. However, empirically determined functional relationships may change or become less stable over time. For this reason, rating systems must, by law, be reviewed on a regular basis. RSU’s methodology department promisses to validate the rating systems every year in consultation with the institutions that contribute to RSU’s data pool. Reviews are performed according to a defined validation policy using professional information and statistical computing technology.

Having received supervisory clearance for its rating systems, RSU has made them available to clients outside the group of shareholding banks since 2007. Currently, RSU claims to have clients including institutions from all three sectors of the German banking system, a number of financial service providers, international institutions, and institutional investors. LB-Rating was implemented using a modern Java architecture (Java EE) as well as IBM products and thus complies with a very common and well established industry standard. LB-Rating is a completely web-based application, which can be accessed using Internet Explorer. Once it has been individually configured and activated, it requires no additional local installation.

LB-Rating is a system designed for preparing, editing, validating and managing internal ratings in accordance with the Basel III/IV framework. It provides standardized and objective credit ratings for various types of obligors as well as for specialized lending.
There are twelve modules now. Clients only acquire licenses for the modules they need for their specific business.

  • One module is intended for rating leasing companies that apply German accounting standards (HGB). It performs a net asset value calculation to take the specific characteristics of these companies into account. The rating model is based on a scorecard approach.
  • The Special Purpuse Company (SPC) Real Estate Leasing module, which uses both scorecard and simulation elements, is designed for assessing real estate leasing projects. The residual value of the property is estimated by simulation. Transfer risk is included for offshore transactions.

Routinely reviewed every year since 2005, the statistical accuracy depends on a database of more than 17,500 ratings. In early 2007, the module received supervisory approval for use under the IRBA.

RSU provides one-year migration matrices and multiannual PD profiles for each of its twelve rating systems. The cyclical properties of the rating systems reflect in the migration matrices and PD profiles, which is essential for the institutions that use them. Information about rating transitions is crucial for banks in various areas of risk management. Once IFRS 9 takes effect, modelling long-term rating migrations will become even more important.

Methodological parameters such as score weights or calibration settings are stored separately and can be changed at short notice without modifying the software. The application is based on a thin-client concept, i.e. all necessary data is provided by the server to the extent possible. Installation and maintenance services are carried out centrally on the server without affecting the user. Changes made on the server, e.g. new releases or security updates, take effect at the same time for all clients. Communication with the system is by secure and encrypted SSL data transfer through dedicated networks. Technological modifications are performed twice a year at fixed dates. All related processes are based on ITIL, thus ensuring secure and high-quality IT workflows.

Since Rating-Flex is a solution for transferring existing rating systems to an audit-proof IT platform, leasing company ratings of different RSU users may differ.. RSU’s Rating-Flex allows to incorporate a client’s own rating algorithms into LB-Rating. WIth respect to all else, incorporated rating systems benefit from the complete functionality of LB-Rating.

GBB-Rating

Under the umbrella of the Auditing Association of German Banks, GBB-Rating Gesellschaft für Bonitätsbeütung mbH (hereinafter referred to as “GBB-Rating”) has been operating as an independent rating agency since 1996. GBB-Rating draws up its opinion on the future viability of a leasing company which is partly based on uncertain future events, their prediction and thus necessarily on estimates. Therefore it is not a statement of fact or a recommendation, but an expression of opinion.

Cologne-based GBB-Rating is a rating agency with particular expertise in the financial services sector. takes into account the requirements of the international standards for rating agencies of IOSCO (“Code of Conduct Fundamentals for Credit Rating Agencies”, the International Organization of Securities Commissions) when applying its rating methodology and when carrying out the rating process for the creation of commissioned and unsolicited credit ratings . In accordance with Regulation (EC) No. 1060/2009 of the European Parliament and of the Council, GBB-Rating was registered by the European Securities and Markets Authority in Paris (ESMA) on July 28, 2011 and has been subject to European supervision for rating agencies since then.

The GBB-Rating leasing company rating methodology is based on the fundamental question of the extent to which the company can meet its financial obligations in full and on time in the future. Determining this ability is the focus of the analysis. The holistic analysis of the GBB-Rating is carried out taking into account all available information classified as relevant. GBB-Rating makes its statements on the basis of the existing rating methodology, which combines quantitative and qualitative approaches.

The aim of the rating process is to arrive at an appropriate and reliable credit rating in a consistent manner. The procedure is based on ensuring the objective of objectivity, quality, impartiality as well as independence and confidentiality. As part of the rating process, the business model-related success and risk factors in particular are analyzed and condensed into a future-oriented, comprehensible overall assessment.

The basis for the ratings are documents on the asset, financial and earnings position as well as the business model, business strategy, the relevant markets, the risk management, the risk situation and the shareholder background. The basic documents and information required to carry out a rating are essentially business reports, as well as information from the companies in connection with a GBB-Rating questionnaire.

Information from ad hoc announcements or other publicly available information as well as information and documents in the context of management meetings are also taken into account. All available rating-relevant documents and information are checked for topicality, completeness and plausibility during the course of the rating process.

GBB-Rating provides both solicited and unsolicited ratings. A commissioned rating is based both on internal information provided by the company to be assessed and on publicly available data. Unsolicited ratings are generally based on publicly available data and information (further details can be found in the policy for the implementation and creation of unsolicited ratings). Unsolicited ratings can also be carried out purely for internal purposes (benchmarking), in which case it is not published.

Published ratings are continuously monitored by the leading analyst and a second analyst and updated at least once a year. The leading analyst presents the rating result with all analyzes and evaluations to an independent rating committee, which makes final decisions on the following issues:

  • setting the rating,
  • suspending a rating,
  • withdrawing a rating (“Withdrawal”).

Before each acceptance or continuation of an order, GBB-Rating checks whether the independence regulations of GBB-Rating are complied with, whether there is a risk of potential conflicts of interest or other order risks and whether sufficient resources are available to adequately take into account the special requirements of the order. In case of doubt, the order must be rejected or resigned. Required advance information, for example, in order to be able to assess the complexity of the company and the main features of the business model, is collected in an initial internal pre-analysis. If there are no reasons that prevent an order from being accepted, the rating process, the rating methodology and the conditions for a rating are explained to the company interested in a rating. In advance, GBB-Rating does not indicate a rating or a preliminary rating.

After the order has been placed in writing, the company to be assessed receives a list of information and documents required for the analysis in connection with a questionnaire. Additional requests for information and documents may be necessary during the course of the rating process. All data and evaluations received are treated confidentially by GBB-Rating. In order to guarantee the high level of confidentiality, GBB-Rating has set up supporting organizational measures (e.g. restrictive access authorizations, Chinese walls) and drawn up appropriate regulations. The rating is carried out by the leading analyst who is the contact for the rating customer. The implementation of the rating is accompanied by an independent second analyst.

Do not expect to talk always to the same analysts. Potential conflicts of interest are countered, among other things, through a rotation process. The leading analyst changes after four and the second analyst after five years at the latest. A resumption of the analysis activity can take place after two years at the earliest if the supervision period was previously fully used. In order to guarantee the continuity of the assessment, changes in the rotation of the leading analyst and the second analyst are generally delayed. When planning and assigning rating orders, the aspects of technical knowledge, availability and independence are taken into account.

The analysis is supported by IT-based rating models based on a comprehensive catalog of criteria. For the analysis and evaluation of both the qualitative and the quantitative criteria, there are extensive and detailed internal guidelines or specifications and process descriptions (rating manual). On the basis of the financial and business profile, taking into account defined internal rules and procedures, the leading analyst analyzes, assesses and evaluates the key figures and criteria. The second analyst controls, checks for plausibility and checks the credit rating of the leading analyst on the basis of internal guidelines and procedures of GBB-Rating. The leading analyst presents the rating result with all evaluations to an independent rating committee, which makes the final rating decision.

The leasing company will be informed in writing shortly after the final confirmation by the rating committee (“notification”). The modified procedure for the publication of unsolicited ratings can be found in the policy for implementing and creating unsolicited ratings. There must be a reasonable period of time between informing the institute and a possible publication or notification to subscribers (hereinafter “publication”) of the rating.

The leasing company is informed no later than one full working day (within business hours) before publication, so that there is an opportunity to point out factual errors or ambiguous formulations. In the case of a commissioned or solicited rating, the rating customer determines whether a rating result is published. Publications of rating results by the leasing company (e.g. press releases) must be coordinated with GBB-Rating.

If there is no follow-up rating already published on the GBB-Rating homepage prior to an unequivocal publication commitment or a publication revocation, the rating result to be updated is marked with the addition “in communication” after a reasonable period of time to indicate that a current rating action is still being coordinated with the rating customer. After a further ten working days at the latest, a final decision about the publication or, alternatively, a withdrawal of the rating from the homepage must be made. The rating list will be updated accordingly. A rating in which only the publication is withdrawn remains valid in relation to the client who pays the fee. There are no technical access restrictions in connection with the publication. A financial expense (fee, publication fee, access fee, etc.) in connection with a publication does not arise either for the rating customer or for interested third parties.

Along with the fee billed, a rating is generally valid for a period of twelve months after being announced. During this period, the development of the company and the industry is continuously monitored by the analysts. The aim is to ensure that a rating remains up-to-date in its statement. For this purpose, the leading analyst is in contact with the company and evaluates a. information and publications during the year. If events or developments occur during this observation period that could have a materially positive or negative effect on the company’s economic situation, the rating is reviewed and adjusted if necessary.

An Internal Review function – as required by the regulator – is responsible for developing and reviewing rating methods. The method committee as the approval body is the final decision-making body for the implementation and introduction of method adaptations or changes. Depending on the occasion, but at least once a year, the rating methodologies undergo a backtesting / validation process. In the event of changes to the rating methodology, the rating customers affected are informed about the planned changes and the possible effects as part of a four-week consultation. A review of the ratings concerned takes place within six months.

BCRA

The Bulgarian Credit Rating Agency (BCRA) provides an appraisal of the creditability of a leasing company. It intends to express an external, objective, and independent opinion for the capability of the Company to serve its liabilities in full, and on time. The short-term ratings present an opinion for the possibility that the rated Company fails to meet its liabilities, within the short term (up to 12 months), while all else is a long-term rating.7

In order to rate leasing companies, the historical development of the sector is reviewed, and its present state is analyzed. The main trends in the sector are analyzed, as well as the manner, in which these influence the scrutinized leasing company. Based on this analysis, a forecast is made for the future development of the leasing sector. BCRA also reviews the legal framework, regulating the activity of the companies in the sector and the risks, resulting from its current state, and possible changes in it.

BCRA makes a detailed analysis of the competitive position and financial strength of the main (direct or indirect) shareholders in the rated leasing company. A strong major shareholder can be a source of know-how and other support. BCRA assesses the ability of the main shareholder to adequately capitalize the analyzed leasing company.

The management is being analyzed from the viewpoint of its competency, of the management structure created, of the practices applied, and of the existing systems for leasing company management. When appraising the management, the leasing company strategy, the vision of the managers for their business at present, and their forecasts for the future are also reviewed.

BCRA analyzes the operating activity of the rated company in details. The portfolio of the leasing company, as well as the market share and competitive position of the company are reviewed. Reviewed are also the relations of the Company with its counterparts, as well as the risks, which can arise from the agreements made and from the practices applied.

The financial state of the leasing company is an indicator for the overall strength of their business but also a direct source of risk, analyzed in four main areas: Profitability, Operating effectiveness, Indebtedness, and Liquidity. With a view of the specific activity of the leasing companies, the main point in the analysis is set on the management of the interest, currency, liquidity and credit risk, as well as on the risk of the residual activity.

The result from applying the listed above analysis comprises the so-called base rating. The final stage of the calculation of the rating is the potential adjustment of the base rating due to the general sovereign-risk factors, as evaluated by BCRA using the Sovereign Rating Methodology.

The rating “ceiling” is the term used for the upper limitation on the rating caused by sovereign-risk factors. Slightly less limited are the ratings of those subsidiaries whose direct or indirect majority shareholder is a foreign legal entity able in one way or another to make up for the deleterious effects of the local environment. The ceiling of local subsidiaries would surpass the sovereign rating by one or more notches, which in turn cause their final rating to surpass the sovereign rating. BCRA could also issue a national-scale rating to entities or issues which is relative, in comparison to other rated entities in the country, taking into consideration only the specific risk factors of the entities and not the effect of the local environment on them.

More Than 300 Raters Worldwide

Agencies, Bureaus, Raters, Read

There is a simple definition of the word “rater”: “one that rates”. A rater is specifically a person who estimates or determines a rating. Not every rater is a rating agency. In a number of countries, only legal persons can be recognized as rating agencies. In most countries, individuals are free to express their opinion publicly. In the case of credit ratings, however, companies in the European Union, for example, are prohibited from expressing opinions about the creditworthiness of other companies. In order for a rating agency to express an opinion freely, official approval is required.

Ratings appear in many contexts. On RATING.REPAIR, only those ratings are of interest that are important for investment and financing decisions. The “raters” category on RATING.REPAIR meets the need to find out more about names that may be classified as rating agencies. To date we have included the names of rating agencies from the following countries:

  1. Australia
  2. Austria
  3. Bahrain
  4. Bangladesh
  5. Brazil
  6. Bulgaria
  7. Canada
  8. Chile
  9. China
  10. Colombia
  11. Costa Rica
  12. Cyprus
  13. Ecuador
  14. El Salvador
  15. Estonia
  16. Finland
  17. France
  18. Germany
  19. Greece
  20. Hongkong/China
  21. Hungary
  22. India
  23. Indonesia
  24. Ireland
  25. Italy
  26. Japan
  27. Kazakhstan
  28. Kuwait
  29. Kyrgyzstan
  30. Latvia
  31. Liechtenstein
  32. Malaysia
  33. Mexico
  34. Montenegro
  35. Myanmar
  36. Nepal
  37. Netherlands
  38. New Zealand
  39. Nigeria
  40. Norway
  41. Pakistan
  42. Peru
  43. Philippines
  44. Poland
  45. Portugal
  46. Romania
  47. Russia
  48. Serbia
  49. Singapore
  50. Slovakia
  51. Slovenia
  52. South Africa
  53. South Korea
  54. Spain
  55. Sri Lanka
  56. Sweden
  57. Switzerland
  58. Taiwan/China
  59. Thailand
  60. Trinidad and Tobago
  61. Turkey
  62. Ukraine
  63. United Kingdom
  64. Uruguay
  65. USA
  66. Uzbekistan
  67. Vietnam
  68. Zambia

We have been collecting information about rating agencies since the 1980s – even at a time when the internet didn’t exist yet. At that time, information was only available from newspapers and magazines, books, archives, through visits, by post or by telephone. RATING EVIDENCE GmbH uses this unique documentation and answers questions about all known active and inactive agencies and even companies that provide information about creditworthiness, deliver credit reports or could be confused with Recognized Credit Rating Agencies. Some rating agencies have a large number of subsidiaries. In these cases only the most important companies are listed here.

More than 500 raters on our list

The following list contains the names of more than 500 rating companies regardless of whether they are still active, have changed their names or are even irrelevant or not recommendable for some investment and financing decisions. Our rough estimate is that around 300 of these 500 companies are active. The other 200 names refer to rating agencies that have since been taken over, renamed or ceased operations.

This list must not be confused with our favorites or a recommendation list. Rather, it is advisable to contact us to let us know what you want to read about. Depending on demand, you will read more on RATING.REPAIR about any of the names mentioned here.

Names of Chinese rating agencies, unless they have an official English name, appear here in Pinyin. If you have switched on the translation into your language with Google Translate, it is advisable to switch off the translation function when searching for the official name, otherwise the name may also be translated.

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Read more of this content when you subscribe today. Please find here the most comprehensive list of raters worldwide. Contact us if you have any questions about the rating agencies listed here: mail@rating.repair

What Happens When You Become A Founder and Start a New Rating Agency?

Agencies, Products, Read

What happens when you start a new rating agency and become a founder?

The 4 Ps are used here to identify some key factors for a new rating agency, including what investors and issuers want from them, how their services meets or fails to meet those needs, how rating services are perceived in the world, how they stand out from competitors, and how they interact with their customers.

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Rating in Austria

Advisors, Agencies, Read

The Recognized Credit Rating Agencies listed by the European Securities and Markets Authority (ESMA) have been registered or certified in accordance with Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on Credit Rating Agencies (the Credit Rating Agencies Regulation). The list does not contain a rating agency that is based in Austria. Registration or licensing by ESMA allows authorized agencies with headquarters outside of Austria to issue credit ratings in Austria.

In addition to the recognized agencies, there are other companies that deal with ratings. This is also the case in Austria: The following companies domiciled in Austria even have the word “rating” in their company name. These are specialists in credit insurance, companies from the real estate industry, insurance management or business consulting.

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Recognized Credit Rating Agencies

Agencies, Certifications, Read, Registrations, Regulations

There are almost 200 countries in the world. Many countries do not have specific regulations on rating activities, but most industrialized countries do have laws on Credit Rating Agencies (CRAs). Credit Rating Agencies are required to get registered, licensed, recognized or certified.

Until the Credit Rating Agency Reform Act of 2006 was introduced in the United States, there was no really orderly procedure for recognizing Credit Rating Agencies. However, if ratings are used in law to regulate certain issues, provisions are also required as to which agencies may issue the relevant ratings.

Certain authorities are charged with administering the rules of their countries with respect to the practices of Credit Rating Agencies in determining credit ratings for the protection of users of credit ratings and in the public interest. They are promoting accuracy in credit ratings issued by Credit Rating Agencies. The authorities are working to ensure that credit ratings are not unduly influenced by conflicts of interest and that Credit Rating Agencies provide greater transparency and disclosure to investors.

In support of this mission, competent authorities conduct examinations of Credit Rating Agencies to assess and promote compliance with statutory and other requirements.

  • They monitor the activities of Credit Rating Agencies,
  • conduct outreach with investors, issuers, and other industry participants,
  • develop and administer rules affecting Credit Rating Agencies; and
  • provide guidance generally with respect to the regulatory initiatives related to Credit Rating Agencies.

The competent authorities publish lists of the Credit Rating Agencies that they have recognized or certified. For various reasons, these are not always visible. Have a look at what happened on Monday, July 27, 2020 @ 09:00 – the relevant page of the website of the European Securities and Markets Authority (ESMA) was not accessible to everybody. No matter, which device and which browser you are using, you would not get their information online.

We therefore have lists of the data available to us here. In contrast to the official lists, our ones include links to Credit Rating Agencies’ websites. This makes it easy to get an overview of all recognized agencies and to contact Credit Rating Agencies. Please ask us for updates.

To find the Credit Rating Agencies recognized in the respective jurisdictions, follow the links in this table.

ArgentinaComisión Nacional de Valores (CNV)
AustraliaAustralian Securities and Investments Commission (ASIC)
AustriaEuropean Securities and Markets Authority (ESMA)
BangladeshBangladesh Securities and Exchange Commission (BSEC)
BelgiumEuropean Securities and Markets Authority (ESMA)
Bolivia…more
BrazilComissão de Valores Mobiliários (CVM)
BulgariaEuropean Securities and Markets Authority (ESMA)
CanadaCanadian Securities Administrators
(
CSA/ACVM)
ChinaPeople’s Bank of China (PBoC), National Association of Financial Market Institutional Investors (NAFMII), China Insurance Regulatory Commission (CIRC), National Development and Regulatory Commission (NDRC), China Securities Regulatory Commission (CSRC)
Costa RicaSuperintendencia General de Valores (SUGEVAL)
CroatiaEuropean Securities and Markets Authority (ESMA)
Czech RepublicEuropean Securities and Markets Authority (ESMA)
DenmarkEuropean Securities and Markets Authority (ESMA)
EcuadorSuperintendencia de Compañías, Valores y Seguros (SC)
El Salvador…more
EstoniaEuropean Securities and Markets Authority (ESMA)
FinlandEuropean Securities and Markets Authority (ESMA)
FranceEuropean Securities and Markets Authority (ESMA)
GermanyEuropean Securities and Markets Authority (ESMA)
GreeceEuropean Securities and Markets Authority (ESMA)
Guatemala…more
Honduras…more
HungaryEuropean Securities and Markets Authority (ESMA)
IndiaSecurities and Exchange Board of India (SEBI)
IndonesiaOtoritas Jasa Keuangan (OJK)/Financial Services Authority (FSA) …more
IranSecurities & Exchange Organization of Iran (SEO)
IrelandEuropean Securities and Markets Authority (ESMA)
ItalyEuropean Securities and Markets Authority (ESMA)
JapanFinancial Services Agency
(
FSA)
LatviaEuropean Securities and Markets Authority (ESMA)
LithuaniaEuropean Securities and Markets Authority (ESMA)
LuxembourgEuropean Securities and Markets Authority (ESMA)
MalaysiaSuruhanjaya Sekuriti Securities Commission Malaysia (SC)
MaltaEuropean Securities and Markets Authority (ESMA)
MexicoComisión Nacional Bancaria y de Valores (CNBV)
NetherlandsEuropean Securities and Markets Authority (ESMA)
Nicaragua…more
PakistanSecurities and Exchange Commission of Pakistan (SECP)
Panamá…more
Perú…more
Philippines…more
PolandEuropean Securities and Markets Authority (ESMA)
PortugalEuropean Securities and Markets Authority (ESMA)
Republic of CyprusEuropean Securities and Markets Authority (ESMA)
República Dominicana…more
RomaniaEuropean Securities and Markets Authority (ESMA)
RussiaCentral Bank of the Russian Federation, Bank of Russia (CBR)
Saudi ArabiaCapital Market Authority of Saudi Arabia (CMA)
SingaporeMonetary Authority of Singapore (MAS)
SlovakiaEuropean Securities and Markets Authority (ESMA)
SloveniaEuropean Securities and Markets Authority (ESMA)
South AfricaFinancial Sector Conduct Authority (FSCA)
SpainEuropean Securities and Markets Authority (ESMA)
SwedenEuropean Securities and Markets Authority (ESMA)
SwitzerlandSwiss Financial Market Supervisory Authority FINMA
Taiwan…more
ThailandSecurities and Exchange Commission Thailand (SEC)
TurkeyCapital Markets Board of Turkey (CMB)
UkraineNational Securities and Stock Market Commission (NSSMC)
United States of AmericaU.S. Securities and Exchange Commission Nationally Recognized Statistical Rating Organizations (US SEC NRSRO)
UruguayBanco Central de Uruguay (BCU)

The table refers to the statutory rating requirements mandated by laws and regulations. In practice, however, ratings are often “encouraged”, “advised” and/or “requested by investors”. Please note that this is not an exhaustive list. RATING EVIDENCE has detailed information for a number of other countries. It should also be borne in mind that in some countries the regulation of credit rating agencies is not left to just one authority, but rather that a plurality of authorities within the same jurisdiction recognize credit rating agencies for different purposes according to different standards. Here are some examples:

  • Bond Public Offering,
  • Bond Private Placement,
  • Debt instrument other than bond (Medium Term Notes, Commercial Paper)
  • Bank Loan,
  • Asset Backed Security Issue,
  • Public Issue of Equity Shares,
  • Banks,
  • Non-bank Financial Institution (before IPO),
  • Non-Life & Life Insurance Company,
  • Microfinance Banks (MFBs),
  • Offshore Bond Market/External Commercial Borrowings,
  • Public Deposits of Non-Banking Finance Companies,
  • Security Receipts issued by Asset Reconstruction Companies,
  • Micro & Small Enterprises (MSE),
  • Grading of Maritime Training Institutes,
  • Parallel Marketers of Liquified Petroleum Gas/Superior Kerosene Oil,
  • Energy Services Companies,
  • Renewable Energy Service Companies (RESCOs),
  • System Integrators (SI),
  • Structured Products
  • Modaraba Certificates of Musharaka.

Please see each country’s page for details.

Authorization

raining in the city

Insolvent Greensill Bank Relied on “Scope Risk Solutions”

The German supervision missed the chance to intervene. “It cannot be right for a rating agency to give a bank a rating and at the same time advise on the analysis,” the Frankfurter Allgemeine Zeitung quotes Frank Schäffler (FDP), a member of the German Bundestag. “That stinks to heaven,” is how the financial expert sums…

black chain

Scope’s Greensill Bank Rating Tragedy

The Federal Financial Supervisory Authority (BaFin) filed criminal charges Against The Bank’s Board Members. The Federal Financial Supervisory Authority (BaFin) in Germany received monthly reports from Greensill Bank AG (Greensill Bank) about the bank’s balance sheet data from January 2019 on. This is evident from the answer given by Parliamentary State Secretary Sarah Ryglewski on…

person pouring champagne on champagne flutes

Scope Group Not Within the Scope of ESMA

The scandal surrounding Greensill Bank and the credit rating of Scope Ratings GmbH for this bank raises the question of how the situation at the Scope Group got out of control.

Secured Income by Securing Deposits

The system of deposit insurance in the private banking industry makes GBB-Rating almost indispensable. Cologne-based GBB-Rating, a company of the Auditing Association of German Banks, offers credit ratings with a price / performance ratio challenging its US peers. It is approved by the European Supervisory Authorities (ESAs) as an External Credit Assessment Institution (ECAI) for…

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Rating Repair of a German Hotel Consulting Company’s Credit Report

Bureaus, Read, Repairs, Reports

How does rating repair work in practice? The following is an example. A full rating repair needs even more than shown here, but this real example of a real company gives a first impression of what it’s all about. Rating repair differs considerably between different size classes of companies, type of organization, legal form, industry, etc. The following is an example of a consulting company that specializes in advising hotels.

The company uses the opportunities to work together in teams of freelancers and employees of the customers. Computers, data and software are the company’s most important assets that can be accounted for. The legal form of a GmbH is used to limit liability from business activities. It is therefore in the case of this consultancy not a function of this legal form to accumulate capital. Despite successful business activity, the balance sheet total is therefore low.

The example looks at the credit report from an international credit reporting agency for a German company. The report cannot be compared to an analysis by a Recognized Credit Rating Agency. However, information like the one shown here helps many suppliers, customers and other business partners as well as authorities before they decide on a business relationship. Wrong information can therefore have fatal consequences.

Every decision maker takes their first look at the summary. The company shown here is doing very well. This is evident from the excellent Credit Index, Risk Score, International Score and Probability of Default. This good assessment does not rule out that the report is incorrect. In particular, minor errors can be found which, although they do not significantly change the overall assessment, nevertheless create a false image of the company. Therefore, all details must also be checked. Examples of this are shown below. The consequence of the analysis can be to contact the credit reporting agency and ask for a correction of the data.

Key Financials and Payment Details Summary

“Days Beyong Terms” (DBT) are the average days beyond terms weighted by the age and amount of invoices. The calculation uses all trade lines received from suppliers of the Trade Payment Programme. The credit reporting agency points at the fact, that this is not a statistic based on representative and complete data. Available trade lines might contain occasional instances which are not representative. It is possible that companies with a high Days Beyond Terms pay within terms on other occasions.In the case of this consulting firm, the sales from suppliers are insignificant. Accordingly, no peculiarities in payment behavior are reported.

Auditor Detials, Business Purpose and Additional Industry Codes

The company shown here has been around for more than a decade. Over the years, the purpose of the company may have changed or the focus of its business activities may have shifted. If so, the consequences for the assessment should be examined. For example, it makes a big difference whether a company offers hotel advice or operates a hotel itself. Hotels have to expect massive losses due to the corona crisis. The industry will have to be assessed accordingly critically.The consultant here in the example is not directly affected by this development, so it remains to be seen whether he might even benefit from the need for restructuring in the hotel industry.

Score Summary

The Score Summary shows the Credit Worthiness “very low risk profile” and an Assessment: “The default risk is reckoned to be very low. The business connection can be approved.” With such a good credit rating, the only question for the assessed company is how the good credit assessment can be secured for the future.

Credit Limit and Contract Limit

The recommended credit limit is calculated using a formula that analyses information from a company’s financial accounts and payment record. The registered company credit limit is the credit reporting agency’s recommendation of the total amount of credit that should be outstanding at any one time. A Contract Limit is the suggested value of a contract that a company can handle. It is an assessment of the subject company and its suitability to carry out a specific contract. It is mainly based on value of the sales that a company can generate. The values shown here are very low, as if the consulting company could only place orders up to € 1k without collateral. Ratingrepair can help to raise the limit here. Various instruments are available for this, which require further advice in order to implement them.

Directors / Shareholders Summary and Current Directors

Credit bureaus get their information from public registers. When the consulting company was founded, three managing directors were appointed. Of these, however, two left the management after just a few years. In the meantime, the management is carried out solely by the majority shareholder. There is a need for correction here. Anyone who continues to research these people would potentially draw misleading conclusions from the information obtained.

Shareholders

As can be seen here, the shareholders were correctly recorded by the credit reporting agency when the company was founded. In the present case, the changes in the shareholder structure were not taken into account.In the meantime, the shareholders had changed. Two shareholders sold their shares. A new partner joined. However, this is not reported here. Since there are no longer any relationships with the old shareholders, this information should be corrected.

Beneficial Ownership

For certain businesses and industries the Anti-Money-Laundering law (Geldwäschegesetz – GwG) requires to check if the trade partner has a beneficial owner. This identification of the beneficial owner shall prevent straw man transactions and identify the natural person in whom the economic interest is being made. At legal persons or companies a beneficial owner is every person who holds more than 25% of the voting rights, more than 25% of the capital share or more than 25% of the assets. Violations against the GwG can be fined up to 100,000 Euro per violation.

There is also a wrong statement here. Incorrect information about a beneficial owner can be severely punished, depending on the circumstances. In our example, the beneficial owner is now the German managing director / majority shareholder and no longer Swiss, as can be seen here.

Assets and Liabilities

The balance sheet shown by the credit bureau shows typical characteristics of a small company: The balance sheet items fluctuate greatly in their amount, since even absolutely small amounts lead to relatively large changes.

Debt Ratio

Find above a comparison of the company based on the industry code (primary) with other companies from the same industry. The analysis of the credit reporting agency has been based on the industry code 70 – Activities of head offices; management consultancy activities. The Debt Ratio measures the ratio between debts and equity of a company. Here, too, the strong fluctuations typical of small companies can be seen, which cannot be compared with those of large companies.

Cash Ratio

The Cash Ratio shows the ratio between liquid assets and short-term debts. The consulting company only delivered the legally required minimum balance sheet to the German Federal Gazette. This does not require a breakdown of the current assets. The liquid assets can therefore not be determined from the publicly available data.These items are accordingly noted in the credit report with dashes. Depending on the situation, it may be advisable to voluntarily break down these items in the annual financial statements submitted to the German Federal Gazette.

Revenue

The revenues indicate the value of goods and services a company sold within it’s ordinary business activity during a trading period. An income statement does not necessarily have to be submitted to the Federal Gazette if certain threshold values for company size are not exceeded. Accordingly, only dashes are used here instead of concrete numbers. Small corporations are those that do not exceed at least two of the three following criteria (1) 6,000,000 € balance sheet total; (2) 12,000,000 € in sales in the twelve months prior to the closing date; (3) an annual average of fifty employees. Micro corporations are small corporations that do not exceed at least two of the three following criteria: (1) 350,000 € balance sheet total; (2) 700,000 € in sales in the twelve months prior to the reporting date; (3) an annual average of ten employees. The disclosure requirements are graded accordingly.

Net Profit Ratio

Net Profit Ratio measures the ratio between operational result and revenue. So it indicates how much the company actually earned with its achieved revenues. For the same reasons of the limited disclosure, the information on the net profit ratio is also not meaningful.In the present example, the credit reporting agency has not made any estimate of these values.

We would be happy to deal with your credit report. After we look into your case, you’ll soon be reading our comment here. Please contact us:

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In summary, there is a need for rating repair here. Errors on the credit report can lower the credit score. Unfortunately, the same is true for correct information. If facts are rather unfavorable that could be published voluntarily in the Federal Gazette or to the credit bureau, this can lead to a worse Credit Index, Risk Score and International Score and an estimate of a higher Probability of Default.

For certain businesses and industries the required check according to the Anti-Money-Laundering law (Geldwäschegesetz – GwG) could not be assisted by the data provided in the credit report. The reported trade partner is not the beneficial owner, since partners had changed.

Recognized Credit Rating Agencies in Russia

Agencies, Certifications, Read, Registrations, Regulations

ACRA Analytical Credit Rating Agency

The Russian Government set a minimum credit rating for banks that service federal budget funds (the document is published on the official website of the Russian Federation Ministry of Finance at http://government.ru/docs/28240/).

The federal budget funds may be placed on deposits with bank that have a credit rating of at least A-(RU) under the ACRA’s (Analytical Credit Rating Agency; Russian: Аналитическое Кредитное Рейтинговое Агентство) national rating scale. A-(RU) reflects a moderately high creditworthiness, with some sensitivity to adverse changes in commercial, financial and economic conditions. Moreover, the Federal Treasury has the right to establish stricter credit rating requirements.

ACRA is a rating agency based in Moscow, Russia. It was established in 2015, due to their only relative independence colloquially known as the “Putin Credit Rating Agency”. Due to the withdrawal of US-based rating agencies because of legislative changes and sanctions against Russia, ACRA expects to become Russia’s main ratings issuer. ACRA apparently does not issue ratings to companies outside of Russia.

Expert RA

Expert RA was on the list of credit rating agencies accredited by the Bank of Russia. Being rated by Expert RA is among the official requirements imposed on banks, insurers, pension funds, and issuers. Expert RA ratings are used by Bank of Russia, Ministry of Finance, Ministry of Economic Development, Moscow Exchange and other financial market participants.

National Rating Agency Limited Liability Company (NRA)

National Rating Agency Limited Liability Company (NRA) was in the register of ratings agencies accredited with the Ministry of Finance of the Russian Federation. Ratings were officially recognized by the Central Bank of the Russian Federation, Vnesheconombank, Federal Financial Markets Service, Rusnano, Ministry of Agriculture of the Russian Federation, Agency for Housing Mortgage Lending, RTS and MICEX stock markets, National Association of Stock Market Participants, National Securities Association, National Managers’ League and  Association of Russian Banks. On January 13, 2017 NRA informed the market participants that it will not take any rating actions with respect to credit ratings (including NRA’s Credit Rating, Financial Reliability and Financial Strength Ratings) assigned before the end of the transitional period (before January 13, 2017) until it is entered in the Register of Credit Rating Agencies. NRA continued assigning and updating non-credit ratings, such as the Reliability Rating, the Service Quality Rating, the Corporative Management Quality Rating, the Risk Management Quality Rating, the Employer Attractiveness Rating, and some other. The assignment and update of the said ratings will go on as a normal course of NRA’s business, without any changes. NRA examined the Bank of Russia’s statement of reasons for its decision not to include NRA in the Register of Credit Rating Agencies in order to prepare a new folder of documents and re-apply for registration.

Monetary Authority of Singapore Encourages Ratings By Singapore-dollar Credit Rating Grant

Agencies, Certifications, Read, Registrations, Regulations

The European Commission’s decision to repeal the equivalence status for Singapore Credit Rating Agencies does not impact the operations of Credit Rating Agencies in Singapore. As confirmed by the European Commission, Credit Rating Agencies in Singapore will continue to be able to access the European Union market through the endorsement regime which they currently operate under. Under this regime, ratings issued by Credit Rating Agencies in Singapore are endorsed by their related entities in the European Union, and can continue to be recognised and used for regulatory purposes in the European Union.

There are two existing regimes for Credit Rating Agencies outside of European Union to have their ratings recognised and used for regulatory purposes in the EU, namely certification through the equivalence regime or endorsement. While Singapore’s regulatory regime for CRAs no longer has equivalence status, Singapore continues to be on the list of countries that the European Securities and Markets Authority (ESMA) has deemed as meeting the legal and supervisory framework for the endorsement regime.

Credit Rating Agencies play numerous roles in the financial system of Singapore. For example, direct insurer who apply for a licence need to report about credit raitngs. Since applicants need a licence to carry on life and/or general insurance business in Singapore, they have to meet admission criteria. The Monetary Authority of Singapore assesses applications for direct life and general insurance licences using a number of criteria, among them past and present credit ratings by international rating agencies, including Standard and Poor’s, A.M Best, Moody’s and Fitch.

Since June 30, 2017 the Monetary Authority of Singapore provides a Singapore-dollar Credit Rating Grant to encourage issuers in the Singapore-dollar bond market to issue rated bonds. The Singapore-dollar Credit Rating Grant covers the cost of issuer, programme and issue ratings from Fitch Group, Moody’s, and Standard & Poor (S&P). For each qualifying issuer, the SGD Credit Rating Grant can cover credit rating expenses from multiple issuances subject to the funding cap.

Although investors today generally have access to publicly available information such as company financial statements and offering documents when they consider their bond investments, the Monetary Authority of Singapore believes that greater availability of credit ratings in the domestic bond market will help to further improve market transparency, by providing timely and independent assessments of the credit worthiness of issuers throughout the life of a bond.

Credit ratings can also benefit bond issuers. Many regular issuers in the Singapore-dollar bond market are currently unrated and rely mainly on the same pool of domestic investors. Credit ratings will allow these issuers to attract a broader and more diverse investor base, including international institutional investors. The Singapore-dollar Credit Rating Grant is open to both foreign and domestic issuers.

Securities and Exchange Commission Thailand Approved Credit Rating Agencies

Agencies, Certifications, Read, Registrations, Regulations

The following rating agencies shall be Credit Rating Agencies approved by the Office of the Securities and Exchange Commission of Thailand to issue credit rating for instruments or businesses related to issuance and offer for sale under the Notification of the Capital Market Supervisory Board and instruments. They are required to provide credit ratings under the rules related to investment of mutual funds and private funds.

In the case where the credit rating for instruments or businesses related to issuance and offer for sale under the Notification of the Capital Market Supervisory Board, the domestic Credit Rating Agencies shall assign the credit rating within the a specified scope. Credit rating agency business is excluded from securities business in the category of securities investment advisory. In case credit rating agencies established under a foreign law issue a credit rating for instruments or businesses related to issuance and offer for sale of instruments in the Kingdom of Thailand, such credit rating agencies shall comply with the following requirements:

  • In case of issuing the credit rating to structured finance product, symbols used shall be different from those used in issuing the credit rating to general debt instruments, provided that the symbols’ meanings shall be clearly explained and disclosed to investors;
  • in case of unsolicited rating disclosed in Thai language, the following requirements shall be complied:
    • policy and practice guideline for issuance of the credit rating in such cases shall be clearly specified;
    • in disseminating the credit rating to the public, the following information shall always be correctly and completely disclosed the issuance of the credit rating was not hired by instrument issuer and whether or not the instrument issuer participated in providing of information for the purpose of issuing the credit rating; sources of information used in issuing the credit rating. If any credit rating agency lacks suitability or credibility in undertaking of credit rating business or fails to comply with guideline in undertaking of credit rating business as specified by International Organization of Securities Commissions (IOSCO) or fails to comply with the requirement specified in Thai law.

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Comisión Nacional Bancaria y de Valores Supervised Credit Rating Agencies

Agencies, Certifications, Read, Registrations, Regulations

Comisión Nacional Bancaria y de Valores (CNBV) main function is to inform the market about the real risks that the investing public faces in financial intermediation. Regulation is essential for greater transparency in its actions and less exposure to conflict of interest. The Comisión Nacional Bancaria y de Valores supervises 7 Credit Rating Agencies, called Instituciones Calificadoras de Valores (ICVs) in Mexico, within the framework of the Securities Market Law, the General Corporations Law Mercantile and Provisions on the matter.

In accordance with current regulations, among other information, these institutions must have available on their website the meaning and scope of their qualifications, the codes of conduct that govern their actions, the methodologies and procedures they use for the study, as well such as the analysis of the credit quality of the entities or issuers, and any substantial changes in them must be revealed so that they can be consulted by the investing public.

Comisión Nacional Bancaria y de Valores powers over Credit Rating Agencies:

  • Carry out inspection and surveillance.
  • Make observations and, where appropriate, order the adoption of measures aimed at correcting the irregular facts, acts or omissions that it has detected..
  • Impose sanctions of an administrative nature.
  • Issue provisions that contain minimum requirements that must be included in its Code of Conduct.
  • Determine the means through which Credit Rating Agencies must disclose to the public the ratings they make on securities already registered or to be registered in the National Securities Registry.
  • Issue provisions on the financial, administrative and operational information that rating agencies must submit, as well as their modifications and cancellations.
  • Revoke their authorization when they commit serious or repeated infractions to the provisions of the Securities Market Law; are declared bankrupt, or agree to its dissolution and liquidation, prior agreement of its Governing Board.
  • Authorize their merger or division, with the prior agreement of their Governing Board.
  • Require data, reports, records, minute books, documents, correspondence and other information deemed necessary for supervision.
  • Order the suspension of the rating service when in its judgment there is a conflict of interest between the client and the Credit Rating Agency.
  • Order the suspension of the publicity of the Credit Rating Agencies when in its judgment it implies inaccuracy, lack of clarity, unfair competition, or may lead to error.
  • It is important to mention that the ratings issued by Credit Rating Agencies are an opinion on the credit quality of an entity or issue, and in no way represent a recommendation on the purchase or sale of a certain security.

Although each rating agency has its own rating scale, in general the rating levels granted by the Credit Rating Agencies could be grouped into: AAA, AA, A, BBB, B, CCC, CC, C, D. However, for greater In detail, the Comisión Nacional Bancaria y de Valores recommends to review the scales published on the internet pages of each Credit Rating Agency (see below).

The regulation of these types of entities requires that the information they disclose to the public be updated, relevant, timely, of quality and clear. The information provided by the Credit Rating Agencies allows the investor to have reliable reference information for investment decision making.

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Suruhanjaya Sekuriti Securities Commission Malaysia Committed to Allow ASEAN-Owned Credit Rating Agencies in Malaysia

Agencies, Certifications, Read, Registrations, Regulations

Under the Working Committee on Financial Services Liberalisation, the Association of South-East Asian Nations (ASEAN) completed the Eighth Package of Financial Services Commitments (Eighth Package), which was signed by the Association of South-East Asian Nations Finance Ministers on April 5, 2019. To enhance access into the capital market via the Eighth Package, the Suruhanjaya Sekuriti Securities Commission Malaysia (SC) committed to allow 100% ASEAN-owned credit rating agencies in Malaysia. This offer came into force on October 7, 2019. Among them, are these two Credit Rating Agencies in Malaysia:

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Securities and Exchange Commission of Brazil Recognized Credit Rating Agencies

Agencies, Certifications, Read, Registrations, Regulations

Here are all recognized Credit Rating Agencies with name, address, district, city, state, postal addressing code, direct distance dialing, phone, fax, names of the risk rating director and internal controls director, registration date, Brazil national registry of legal entities number and current situation as of August 6, 2020.

In addition to the credit risk rating agencies registered with the Securities and Exchange Commission of Brazil, there are others, domiciled in third jurisdictions, which are recognized by the Securities and Exchange Commission for proving compliance with the requirements established by article 5 of CVM Instruction No. 521/2012. So far, agencies in this condition are as follows:

  • A.M.Best Rating Services, Inc., headquartered in the United States of America and supervised by the Securities and Exchange Commission (“SEC”).
  • S&P Global Ratings, headquartered in the United States of America and supervised by the Securities and Exchange Commission (“SEC”).

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Issuer Definition

Definitions, Read

An issuer is a legal entity that issues financial instruments. Depending on the jurisdiction the issuer is domiciled in, the work of an issuer includes to develop, register and sell securities for the purpose of financing its operations. The most common types of securities issued are equities (common and preferred stocks) and debt (bonds, notes, debentures and bills).

The word issuer is so common in finance that it is easy to overlook the exact meaning of the word. The word meaning differs depending on the context. Different laws do not agree in their definitions. This applies not only between the jurisdictions of different states, but even within one jurisdiction.

Various rating agencies offer issuer ratings. Because of the various meanings of the word “issuer” these ratings have to be asked who exactly is meant. On the other hand, it must also be taken into account which exact characteristics of the issuer are classified by the rating. A rating can classify creditworthiness, but also, for example, the issuer’s compliance with ethical, ecological and social criteria.

In the Listing Rules of the United Kingdom of Great Britain and Northern Ireland, for example, any company, legal person or undertaking, any class of whose securities has been admitted to listing or is the subject of an application for admission to listing. In the Disclosure Guidance and Transparency Rules an issuer is a legal entity governed by private or public law which issues or proposes to issue financial instruments; a person whose securities are admitted to trading on a regulated market; and either a person whose shares are admitted to trading on a regulated market or a public company and any other body corporate incorporated in and having a principal place of business in the UK, whose shares are admitted to trading on a prescribed market (not being a regulated market). In the Prospectus Regulation Rules an issuer is a legal person who issues or proposes to issue the transferable securities in question. The examples show that the term “issuer” has different meanings depending on the context in which it is used.

In the United States of America, the term “issuer” means every person who issues or proposes to issue any security; except that with respect to certificates of deposit, voting-trust certificates, or collateral-trust certificates, or with respect to certificates of interest or shares in an unincorporated investment trust not having a board of directors (or persons performing similar functions) or of the fixed, restricted management, or unit type, the term “issuer” means the person or persons performing the acts and assuming the duties of depositor or manager pursuant to the provisions of the trust or other agreement or instrument under which such securities are issued; except that in the case of an unincorporated association which provides by its articles for limited liability of any or all of its members, or in the case of a trust, committee, or other legal entity, the trustees or members thereof shall not be individually liable as issuers of any security issued by the association, trust, committee, or other legal entity; except that with respect to equipment-trust certificates or like securities, the term “issuer” means the person by whom the equipment or property is or is to be used; and except that with respect to fractional undivided interests in oil, gas, or other mineral rights, the term “issuer” means the owner of any such right or of any interest in such right (whether whole or fractional) who creates fractional interests therein for the purpose of public offering.

In conclusion, issuers may be governments, corporations, investment trusts or other legal entities. In general, issuers are legally responsible for the obligations of the issue and for reporting financial conditions, material developments and any other operational activities as required by the regulations of their jurisdictions.

Requested Credit Ratings Process

Procedures, Processes, Read

A credit ratings of a Recognized Credit Rating Agency is usually the result of an issuer requested credit ratings process. In the following, you get a quick overview on how the process looks like at leading Credit Rating Agencies. Please note that there may be special features due to different regulations in different jurisdictions. Please contact us if you have any questions or notice any deviations in your rating process.

A requested credit ratings process usually results in the dissemination of the rating found. In contrast, un unpublished credit rating may include a preliminary rating phase in which the preliminary rating is based upon preliminary information and conditioned upon one or more assumptions. The Credit Rating Agency expresses its credit ratings using the long-term, short-term or the issuer financial strength rating scales.

Alternatively, a Credit Rating Agency may initiate rating coverage on an unsolicited basis, where sufficient public information is available, to broaden industry coverage or provide insight to market participants.

Pre-Engagement

The rating process usually begins when an issuer, sponsor/arranger or underwriter (or, in any of these cases, its agent) contacts a member of Credit Rating Agencies’ business and relationship management group with a request to engage the Credit Rating Agency to provide a credit rating. The rating relationship begins with an introductory meeting or teleconference call. The purpose of this meeting is to introduce the Credit Rating Agency and to provide a high-level description of the ratings process and products. After the discussion, when the issuing organization is ready to move forward, it will request the appropriate ratings application from the Credit Rating Agency. Once the issuer has signed and returned this application, the Credit Rating Agency will begin the ratings process.

Analytical Team Assigned

The analyst or analysts assigned to a particular issuer or obligation (“lead analyst” or “responsible rating analyst”) begins the credit analysis by collecting relevant information on the Issuer or obligation from publicly available sources. Following the receipt of the request for a credit rating, analysts are selected, taking into account the industry and the type of the debt to be rated, among other factors.

Collection of Internal and Public Information

The Issuer will be asked to provide relevant financial and non-financial information. The precise list of information may vary according to the sector and market information. Analysts base their rating analysis on a thorough review of information known to them and believed to be relevant to the analysis and the rating decision in accordance with the applicable criteria. The rating process incorporates information provided directly to the Credit Rating Agency by the issuer, arranger/sponsor or other third party, such as published company financial & operational statistics, reports filed with regulatory agencies, industry and economic reports as well as other data and insights

Request of Non-Public Information

Requested non-public information can include information provided directly by the issuer, arranger, sponsor or other involved party. Confidential background data, forecasts and other communications will be gathered by the Credit Rating Agency’s analytical team. The team conducting the analysis will determine if sufficient information is available to form a view on the creditworthiness of the issuer.

Prepare Detailed Questionnaire

The analytical team conducting the analysis will prepare a detailed questionnaire for the issuer’s management team, which typically involves to prepare main topics for discussion and key questions and to establish detailed agenda to ensure productive dialogue.

Interaction with Issuer

In most cases for solicited credit ratings, the issuer’s management or transaction sponsor participates in the ratings process via in-person management and treasury meetings, on-site visits, teleconferences and other correspondence. The lead analyst and the team conduct a detailed discussion with arranger, management team or sponsor to understand the business and convey the initial thoughts of the analytical team. Analysts also consider macroeconomic data, market events and any other information deemed relevant for rating analysis, such as data from an issuer’s peers, data provided by other analytical groups within the Credit Rating Agency or publicly available information. Analysts engage in frank discussions with Issuers, or their agents or representatives, about their ratings, including credit strengths and weaknesses and trends in their industries.

Analysis

Once information has been gathered, the lead analyst will conduct the analysis of the issuer or obligation by applying the relevant credit rating methodologies, which may include consideration of both quantitative and qualitative factors. Since credit ratings are assigned and reviewed through a committee process, the analysis required beforehand includes a complete application of sector-specific rating criteria and methodologies. The analysts need to determine if information is robust enough to ensure they can form a view of the creditworthiness, assess key rating drivers according to applicable master or sector criteria, and develop or apply rating model where applicable.

Screening Committee

Where a debt issue or financial structure is deemed to have unique or complex features or does not appear to have a fundamental economic purpose, a screening committee may be held to determine whether the full rating process should proceed. A screening committee is not a rating committee but is rather a cross-sector committee that provides an initial layer of review to consider such rating proposals early in the rating process. The primary purpose of the screening committee is to determine the feasibility of assigning a credit rating to such proposals, which may need a crosssector review to assess how certain credit risks should be considered and which rating criteria may be applied.

Draft Report

Once information has been collected and the issuer and/or securities analyzed in accordance with applicable criteria and methodologies, the lead analyst and the analytical team or the primary and secondary analyst will form a rating recommendation and document their analysis and rationale in a committee package. The committee package must contain sufficient content, consistent with the methodology and criteria that apply to the analysis, to provide a solid basis for the recommended credit rating. The package must include a summary of key rating drivers, sensitivity analysis, criteria variations (if any), and details of reasonable investigation, amongst certain other minimum content.

Rating Committee

Committees consider the information and rating recommendation presented in the committee package, and discuss the recommendation. Committees frequently include analysts from outside the immediate asset class, sub-sector or geography since peer analysis is a central element of the process. The lead analyst will formulate his or her recommendation for consideration by a rating committee. The rating committee will also consider whether there is sufficient information to assign a credit rating. If the rating committee believes that the information available, both public and private, is insufficient to form a rating opinion, no credit rating will be assigned or maintained. Rating committees are a critical mechanism in promoting the quality, consistency and integrity of the rating process. A rating committee may adjust (or vary) the application of the criteria to reflect the risks of a specific transaction or entity. All such criteria variations are disclosed in the respective rating action commentaries, including their impact on the credit rating (if any) analysis is a central element of the process. In many jurisdictions, recognized rating agencies are only allowed to use a committee-based rating process. Therefore, credit ratings are determined only through rating committees, by a majority vote of the rating committee’s members, and not by individual analysts. Voting members are chosen based on relevant experience, with seniority and experience thresholds reflected in the committee quorum requirements. The committee considers relevant quantitative and qualitative factors, as defined in established criteria and methodologies, to arrive at the credit rating that most appropriately reflects both current and prospective performance. Consensus decision will be arrived on the appropriate rating, including, where appropriate, a rating outlook or rating watch designation.

Rating Notification

Once a rating committee reaches a decision and the appropriate external communications have been drafted regarding a credit rating action, the lead analyst typically contacts the issuer or its designated agent to inform them of the committee’s decision. The outcome is communicated in writing to the issuer or, where applicable, its arranger, sponsor or agent (exceptions apply). In communicating the credit rating, the rating action and the principal grounds on which the credit rating is based must be explained. Typically, analysts use a draft rating action commentary or a draft presale report, which includes the committee’s ratings decisions, to convey this information. The lead analyst provides the issuer with the opportunity to review the draft rating action commentary (or presale report) to allow the issuer to check for factual accuracy and the presence of non-public information. The Credit Rating Agency evaluates this feedback from issuers while retaining full editorial control over its commentaries. If there is no agreement, the rating process might result in an unpublished credit rating. An unpublished credit rating is a credit rating of an entity, issuer or issuer obligation that is unpublished, confidential and surveilled.

Rating Dissemination

The rating action is published after meeting the country’s issuer communication requirements. Credit ratings are communicated to the general public free of charge via credit rating announcements which are published on a website, and are distributed to major financial newswires.

Surveillance

With the exception of those credit ratings which are clearly identified as point-in-time ratings, once a credit rating has been published, the Credit Rating Agency will monitor that credit rating, as deemed appropriate, on an ongoing basis and will modify the credit rating as necessary in response to changes in the opinion of the creditworthiness of the issuer or issue. Rratings are typically monitored on an ongoing basis and the review process is a continuous one. Monitored credit ratings are also subject to a review by a rating committee, at least once annually. Certain sovereign and international public finance credit ratings are reviewed at least every six months, according to a calendar of scheduled review dates. Some states, such as the member states of the European Union, try to influence their ratings by prescribing a certain frequency of the review process. Analysts will convene a committee to review the credit rating instead of waiting for the next scheduled review if a business, financial, economic, operational or other development can reasonably be expected to result in a rating action. In some jurisdictions, however, the results may not be published easily in this case, but must follow a schedule.

Rating Evidence

The working methods of the analyst teams vary not only from rating agency to rating agency, but also within the Credit Rating Agency, especially in the case of the larger agencies. The scope and quality of the information sources used for a credit rating also vary. Furthermore, the stringency of the application of rating criteria can vary. The evidence base for ratings therefore also varies. RATING EVIDENCE scales the rating results on a scale from 0% (in the case of a completely arbitrary and random classification) to the theoretical case of 100% (the credit rating is beyond any doubt).

Australian Securities and Investments Commission Licensed Credit Rating Agencies

Agencies, Certifications, Read, Registrations, Regulations

The Australian Securities and Investments Commission (ASIC) published an information sheet (INFO 143) for credit rating agencies providing services in Australia. It gives guidance on the meaning of certain conditions that apply to these credit rating agencies under their Australian financial services (AFS) licence.

It covers the scope and purpose of Australian Securities and Investments Commission’s guidance, separating advisory services from credit rating services, applying methodologies in a continuous manner, timely disclosure of actual and potential conflicts of interest, periodic review of methodologies and models, and review of and disclosure about affected ratings after material changes. The conditions covered by Australian Securities and Investments Commission’s information sheet reflect certain provisions of the International Organization of Securities Commissions (IOSCO) Code of Conduct Fundamentals for Credit Rating Agencies (IOSCO Code), which credit rating agencies must adopt with specified modifications under their Australian financial services licence.

The guidance is provided in the context of the assessment by the European Securities and Markets Authority (ESMA) as mandated by the European Commission of whether Australia’s regulation and supervision of credit rating agencies is equivalent to the European Union’s Regulation on Credit Rating Agencies (EU Regulation).

Under the EU Regulation, regulation and supervision of credit rating agencies in Australia that is at least as stringent as that in the European Union is necessary for ratings prepared in Australia to be endorsed for use in the European Union. Regulation and supervision of credit rating agencies in Australia needs to be considered equivalent in order for ratings prepared in Australia by a credit rating agency without any legal presence in the European Union to use those ratings in the European Union

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First Quality Check On A Credit Reporting Agency: Creditsafe

Agencies, Bureaus, Read, Repairs, Uses

This article is about the credit reporting agency Creditsafe, the performance of the company and a concrete example of what a credit report from Creditsafe looks like in practice. Details of the offer are examined and discussed in detail. We carry out a fact check based on the official data from the Federal Gazette of the Federal Republic of Germany.

With more than 1,200 employees, including 120 in Germany, Creditsafe provides business information and financials to over 115,000 customers with over 365 million company data from 160 countries and from more than 8,000 sources. This is roughly an average of more than 300,000 company data per employee, who supports over 500,000 users for 450,000 decisions every day with the data provided by Creditsafe. Company data is updated five million times a day from local sources. This provides insight into the thousands of business events that occur every day. About 60% of reports available online contain payment details from suppliers.

The presentation of Creditsafe is followed by a concrete example. This is a demanding case because it looks so simple and easy to understand at first glance. The example company looks simple, because it is a music house. The business model is very simple. Buying musical instruments from suppliers, selling to customers. But the music house is a wholly owned subsidiary of a parent company. The parent company was founded six years earlier because it focuses on online sales and the entrepreneur previously worked as a sole trader with his family business. The subsidiary does not make use of the permitted exemptions from separate accounting. This raises the question of whether Creditsafe still achieves an appropriate credit rating. In the following, you will first read general information about Creditsafe and the activities of this credit agency.

Creditsafe is fortunate to have an extensive and ever growing database of up-to-date company information. As the database expands and increases the wealth of data Creditsafe holds, they must evaluate whether this data contains information that is indicative of company stability or future insolvency. Creditsafe must also re-validate whether previous indicators of future insolvency or stability remain true. In both cases, it is likely that adjustments to the scorecard will be needed to improve predictability.

creditsafe logo

To differentiate linguistically, Creditsafe calls its customers sometimes “partners” because customers are companies that in turn obtain information about other companies. Creditsafe partners can add companies from Belgium, Germany, Denmark, Finland, France, Great Britain, Ireland, Italy, Japan, Canada, Liechtenstein, Luxembourg, Netherlands, Norway, Austria, Sweden, Switzerland, Spain and USA to a list for which is monitored via email.

Because not all countries use a value from 1 to 100, Creditsafe is using a rating scale from A to E. This rating scale should make it easier to compare the credit risk of companies across national borders. A is the lowest risk, D is the highest, and E means that no assessment has been made.

Creditsafe accesses data on more than 49,000 active listed companies in over 165 countries around the world, as well as hard-to-find historical data on all non-trading companies involved in asset and real estate management:

  • Name, address and contact details of the company (fully verified),
  • Description of the main business activity,
  • Complete data on shareholders and owners,
  • Credit rating and maximum credit limit,
  • Geographical breakdown of sales and turnover,
  • Information about important competitors,
  • Annual and interim reports,
  • Sales, profit and loss accounts,
  • Balance sheets and cash flow,
  • Key balance sheet indicators,
  • Current and former directors,
  • Information about holding companies and subsidiaries,
  • Corporate ties.

The massive use of electronic data processing not only enables this high productivity unimaginable just a few decades ago, but also enables users to check their customers’ credit and financial data in real time. Unlike other credit bureaus, Creditsafe does not save historical reports, but checks all companies about which no information is available immediately. Whenever a report is not immediately available online for review, the company in question is re-examined to collect current, trustworthy information. Creditsafe wants to be able to serve research orders within five and a half days.

Integrating Creditsafe data with a customer relationship management system should be child’s play thanks to preconfigured apps for Salesforce, Sage, SugarCRM, SAP, Microsoft Dynamics, etc. Creditsafe apps should make manual entry and updating of customer data unnecessary and thus save time and resources. An option for the immediate creation and updating of data records is intended to correct and rely on the data.

The application programming interface makes the following systems available for Creditsafe:

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Telephone searches, stock indices, local agents, branches, official gazettes, payment histories, news, banks, directories, courts and registration authorities are among the sources of information (for researching registration addresses, see Civil Address).

Creditsafe also provides mass and individualized data in a file tailored to the ideas of the respective partner. With hundreds of selectable fields that support all aspects of the business, the content is designed to meet the specific requirements. Such files can be securely provided in a format of your choice, daily, weekly, monthly or quarterly.

Via a programming interface, Creditsafe enables integration into customer-specific Customer Relationship Management (CRM) systems and thus the consistent alignment of a company with its customers and the systematic design of customer relationship processes. The programming interface – Application Programming Interface, API for short – is the part of the program that is made available by a software system to other programs for connection to the system.

With Connect API, data should be integrated into the systems mentioned and users should have the opportunity to use Creditsafe business data in any required way. Direct real-time access to company data is intended to enable employees to make quick and informed decisions with data that the company can trust and that allow the development of new functions and automated processes.

If Creditsafe is connected to one of the systems mentioned, the following tasks should be possible:

  • Checking the creditworthiness of suppliers and customers,
  • Representation of corporate ties,
  • Representation of beneficial owners,
  • Credit ratings for companies worldwide,
  • Continuous monitoring,
  • Financial indicators,
  • Current and historical balance sheet numbers,
  • Check for debtor register entries / bankruptcies.

Creditsafe supports customer and credit decisions in companies with creditworthiness information about private individuals, whose data comes from publicly accessible sources. This data is continuously supplemented by data from national and international partners and by manual research. Negative features include recorded in bankruptcy and debtor registers. Overview of all companies in which a natural person is a manager or in which they hold shares (see also Palturai).

The Creditsafe Data Cleaning Tool is a solution to improve data quality and is available in a total of 14 countries to correct duplicates, errors and outdated information, to identify inactive companies and data with a lot of information (such as company master data, balance sheet data, credit ratings, credit limits and contact information) ) enrich.

The Creditsafe Compliance Check supports the identification of potentially high-risk business relationships and their continuous monitoring (monitoring), for example in the case of current and previous sanctions against companies and private individuals, for the identification of Politically Exposed Persons (PEPs) and in the search for court judgments, negative reporting and bankruptcies .

What does a company search on the platform of “creditsafe.com” deliver? In the following you will see what creditsafe has to offer, what information to expect and how key performance indicators are calculated. Screenshots as of August 2020 guide you through the Creditsafe cockpit. Click on the screenshots in the text below to overlay images on the current page and see more details.

As the example of the music store shows, a professional assessment of creditworthiness cannot be replaced by looking at a few key figures. In the presentation of Creditsafe, the credit index and risk score reflect the good creditworthiness of the music store, which is based among other factors on high profitability, but not on a high equity ratio. Equity is created in the parent company, the results of the wholly-owned subsidiary are always transferred to the parent company, and any losses would be offset by the parent company. It is only through an overall view of all the relevant assessment criteria that Creditsafe can come to a plausible credit rating of the company’s creditworthiness.

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Financial Sector Conduct Authority Registered Credit Rating Agencies in South Africa

Agencies, Certifications, Read, Registrations, Regulations

The Credit Rating Agencies listed below have been registered in accordance with Section 5(1) of the Credit Rating Services Act, 24 of 2012 in South Africa. The list is published by the Financial Sector Conduct Authority in accordance with section 5(10) of the Credit Rating Services Act and is updated within five working days of adoption of a registration decision.

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Canadian Securities Administrators Designated Rating Organizations

Agencies, Certifications, Read, Registrations, Regulations

The Canadian Securities Administrators identified Designated Rating Organizations, and imposed requirements on credit rating organizations wishing to have their credit ratings eligible for use in securities legislation. The rule of the Canadian securities regulators establishes a regulatory framework for the oversight of credit rating organizations by requiring them to apply to become a “Designated Rating Organization” and adhere to rules concerning conflicts of interest, governance, conduct, a compliance function and required filings.

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Comisión Nacional de Valores República Argentina Registered Credit Rating entities

Agencies, Certifications, Read, Registrations, Regulations

Credit Rating Agencies are those entities that are dedicated to making risk ratings. In Argentina, entities must be registered with the Comisión Nacional de Valores in order to carry out the activity and they can be private companies or public universities.

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Public Universities

Unidad CEPAF – Agente de Calificación de Riescos Universidad Pública (UBA)

Universidad Nacional de San Martin

Universidad Nacional de Tres de Febrero

Universidad Nacional del Centro de la Provincia de Buenos Aires

Securities and Exchange Commission of Pakistan Registered Credit Rating Companies

Agencies, Certifications, Read, Registrations, Regulations

An application for permission to form a credit rating company by persons meeting the eligibility criteria accorind to the Credit Rating Company Regulations shall be made to the Securities and Exchange Commission of Pakistan along with a number of documents. The Securities and Exchange Commission of Pakistan on being satisfied that the person seeking permission to form a Credit Rating Company has fulfilled the criteria in terms of the regulations may permit by an order in writing to establish a credit rating company.

The permission granted by the Securities and Exchange Commission of Pakistan to form a Credit Rating Company shall be valid for a period of six months unless extended for a maximum period of further three months under special circumstance, on the application of the promoters made before the expiry of initial six months.

The Securities and Exchange Commission of Pakistan may after making necessary inquiries and after obtaining such further information, as it may consider necessary, and if it is satisfied that each of its promoters or sponsors, directors, chief executive and chairman of the board of directors fulfill the terms and conditions mentioned in the Fit and Proper criteria given grant a licence, subject to compliance with the conditions of the grant of licence as specified in the regulation of Credit Rating Companies.

For renewal of its licence, the Credit Rating Company shall, one month prior to the date of expiry of its licence, apply to the Commission. The Securities and Exchange Commission of Pakistan if satisfied that the applicant continues to meet the requirements for licensing and is eligible for renewal of licence shall renew the licence for one year and issue a certificate of renewal of licence to the Credit Rating Company.

The detailed procedure for grant /renewal of licence and Annexures and Forms as mentioned above may be seen in Credit Rating Companies Regulations, 2016.

The following Credit Rating Agencies were registered according to the Credit Rating Companies Regulations, 2016:

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Securities and Exchange Board of India Registered Credit Rating Agencies

Certifications, Read, Registrations, Regulations

A credit rating agency whose application for grant of a certificate of permanent registration has been refused by the Securities and Exchange Board of India shall cease to undertake any credit rating activity.

Here is a list of registered Credit Rating Agencies in India as of August 3, 2020:

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Benefits of Credit Ratings

Read, Uses

Bond purchases, like all investments, come with a certain amount of implied risk. The primary hazards of bond investing are the potential for non-payment and capital loss, caused by a decline in the instruments’ market value. Credit rating is the shortest profound and comprehensible profitability assessment of a given entity from viewpoint of its creditors. It gives an objective external opinion for the ability of a given debtor to serve his financial debts in a timely manner. Credit ratings are formed and disseminated based on established methodologies, models and criteria that apply to entities and securities that Credit Rating Agencies (CRAs) rate, including corporate finance issuers, financial institutions, insurance companies, public finance and sovereign entities as well as structured finance transactions.

The credit risk of issuers within a given jurisdiction is derived directly from the risk level of the State.The Government’s credit rating directly impacts other local bond issuers such as banks, public companies and state-owned enterprises. The sovereign rating usually serves as a ceiling for domestic enterprises’ own ratings, functioning as a reference point for pricing their bonds.

The reasons for the connection are as follows: A sovereign may impose currency controls on residents, effectively making the State a monopoly in the foreign currency revenues in the relevant territory. The country’s credit rating is indicative of macroeconomic conditions affecting a sovereign economy. This may influence foreign investors’ decision whether to operate within said economy. In some cases, the State guarantees corporate debt (especially that of government companies). While individual investors need to focus on their specific investment decisions, the time-consuming task of comparing sovereign risks and its impact all over the world is taken on by CRAs.

Credit Rating Agencies are creating value beyond data and information. At the heart of what makes them different is their people. They are powered by human insight and a collaborative culture that drives them forward – providing their clients and partners with the insight that has an impact on economies, businesses and livelihoods all over the world. Credit rating agencies play an important role in providing one source of information that aids market efficiency by reducing information costs, increasing the pool of potential borrowers, and reducing the imbalance of information that often exists between buyers and sellers of bonds. Their ratings are dedicated to improve the risk/reward decision-making capabilities of investors globally, while allowing issuers to access capital markets at premiums commensurate with their objectively assessed credit risk.

Credit risk is not only dependent on the organization of an issuer, but also dependent on an instrument’s individual attributes and many other factors. Government bonds denominated in local currency have a relatively low default risk, as sovereigns generally have the ability to print the money needed to repay creditors. For these securities, investors are exposed to a potential drop in the bonds’ value due to increased government debt issuances and inflation. These factors may erode a bonds’ real value. For bonds denominated in foreign currency there is a tangible risk of non-payment, as sovereigns are generally unable to print money to meet obligations.

Few investors have the time, resources or ability to frequently monitor issuer conduct and financial performance to derive the risk level associated with an investment.

The credit rating agencies perform these functions on behalf of investors. Credit Rating Agencies are supposed to use methodologies that are rigorous, systematic, continuous, dynamic and subject to constant validation, and should be completely independent and unbiased, politically and geographically. CRAs are obliged to work on the basis of strict internal controls as well as a robust and comprehensive system of governance. Their work includes monitoring issuers and their issues, reviewing issuer activities; publishing all relevant data to assess investment risk and assessing risk level according to a fixed proprietary scale.

Credit rating agencies take both an issuer’s ability to repay and the degree of commitment to debt repayment into account. With the expansion of the financial markets lending has become more complex and sophisticated. Credit rating is now vital to evaluating potential financial transactions and assisting in bond pricing. Credit rating reduces the dimension of uncertainty faced by potential investors, encouraging investment, and therefore declines in funding costs. In summary, credit rating is of vast importance, not only to the public sector, but to the economy as a whole.

Finma Authorized Credit Rating Agencies

Agencies, Certifications, Read, Registrations, Regulations

The Swiss Financial Market Supervisory Authority FINMA supervises financial institutions making use of the services of Credit Rating Agencies, e.g. for the capital-adequacy calculations carried out by banks. Supervised institutions can use ratings to meet a number of regulatory requirements. In certain specific cases, only ratings from agencies recognised by FINMA may be used. The requirements for recognition are set out in FINMA Circular 2012/1 “Rating agencies”. They are designed to ensure that the quality of ratings used for regulatory reporting meets certain minimum standards. FINMA recognized the following Credit Rating Agencies. Please note that recognition can be limited to certain types of ratings.

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Financial Services Agency of Japan Authorized Credit Rating Agencies

Agencies, Certifications, Read, Registrations, Regulations

The purpose of supervising Credit Rating Agencies in Japan is, in view of specific problems in their governance, to ensure the appropriate business operations of Credit Rating Agencies in Japan, and to bring about the appropriate exercise of their functions.

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Capital Markets Authority of Saudi Arabia Authorized Credit Rating Agencies

Agencies, Certifications, Read, Registrations, Regulations

​As in many other countries, the work of Credit Rating Agencies has been regulated in the Kingdom of Saudi Arabia, since ratings are referenced in various ways in the financial system. It is therefore necessary to determine which Credit Rating Agencies give the relevant ratings. On November 10, 2014, the Capital Market Authority of Saudi Arabia issued the Credit Rating Agencies Regulations, coming into effect September 1st 2015. The Capital Market Authority of Saudi Arabia announced on September 16, 2015 that it received applications from six companies to be authorized to carry out credit rating activities in the Kingdom of Saudi Arabia.

Six companies applied at that time to be licensed to conduct credit rating activities in the Kingdom under the new regulations:

  • Saudi Credit Bureau ((SIMAH),
  • Standard & Poor’s Credit Market Services Europe Limited,
  • Moody’s Investors Services Middle East Limited,
  • Fitch Ratings,
  • The Islamic International Rating Agency; and
  • A.M. Best Europe- Rating Services Ltd.

The Credit Rating Agencies Regulations has been implemented to regulate and monitor the conduct of Credit Rating Agency activities in the Kingdom of Saudi Arabia, and to specify the procedures and conditions to be met prior to obtaining authorization to conduct such activities.

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Authorization of Credit Rating Agencies

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GlobalCapital Celebrates KBRA

2021 Securitization Awards. Kroll Bond Rating Agency (KBRA), a global full-service rating agency, was named “Securitization Rating Agency of the Year” by GlobalCapital at its U.S. Securitization Awards 2021. “KBRA was founded in 2010 to set a standard of excellence and integrity, and we have been loyal to this notion since then,” Eric Thompson, Global…

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Kickers Don’t Hit

URA Research GmbH is once again coming up with new insights into bonds. After reviewing and analyzing the financial reports published in 2021, the URA ratings for 13 bonds were confirmed. For 2 bonds (FC Schalke 04 III and Katjes III) the assessment has deteriorated. The 4th bond from Schalke 04 and the 1st bond…

coins and a piggy bank

Ernst & Young No Longer Has Any Equity On Its Balance Sheet

Auditors have been making double-digit million losses for years. At Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft (EY) in Germany, “equity” is on the assets side, namely as a “deficit not covered by equity” in the amount of € 62,715,000. The provisions, liabilities, deferred income as well as deferred taxes and fiduciary obligations exceed the company’s assets…

U.S. SEC NRSRO

Agencies, Certifications, Compliances, Read, Registrations, Regulations

The Office of Credit Ratings (OCR) assists the U.S. Securities and Exchange Commission (US SEC) in executing its responsibility for protecting investors, promoting capital formation, and maintaining fair, orderly, and efficient markets through the oversight of Credit Rating Agencies registered with the Commission as Nationally Recognized Statistical Rating Organizations (NRSROs). In support of this mission, the Office of Credit Ratings monitors the activities and conducts examinations of registered Nationally Recognized Statistical Rating Organizations to assess and promote compliance with statutory and Commission requirements.

The Office of Credit Ratings is charged with administering the rules of the US SEC with respect to the practices of Nationally Recognized Statistical Rating Organizations in determining credit ratings for the protection of users of credit ratings and in the public interest; promoting accuracy in credit ratings issued by Nationally Recognized Statistical Rating Organizations; and working to ensure that credit ratings are not unduly influenced by conflicts of interest and that Nationally Recognized Statistical Rating Organizations provide greater transparency and disclosure to investors.

Klick on the names of the following Credit Rating Agencies currently registered as Nationally Recognized Statistical Rating Organizations to visit their websites:

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ESMA Authorized Credit Rating Agencies

Agencies, Certifications, Read, Registrations

In the period leading up to the financial crisis in 2008, 2010 and so on, the European Commission considered to strengthen the regulatory and supervisory framework for Credit Rating Agencies (CRAs) in the European Union (EU), to restore market confidence and increase investor protection:

  • (1) The first set of rules, which entered into force at the end of 2009, established a regulatory framework for Credit Rating Agencies and introduced a regulatory oversight regime, whereby Credit Rating Agencies had to be registered and were supervised by national competent authorities. In addition, Credit Rating Agencies were required to avoid conflicts of interest, and to have sound rating methodologies and transparent rating activities.
  • (2) In 2011, these rules were amended to take into account the creation of the European Securities and Markets Authority (ESMA), which supervised Credit Rating Agencies registered in the European Union.
  • (3) A further amendment was made in 2013 to reinforce the rules and address weaknesses related to sovereign debt credit ratings.

The competent authorities publish lists of the Credit Rating Agencies that they have recognized or certified. For various reasons, these are not always visible, such as on Monday, July 27, 2020 @ 09:00 – the relevant page of the website of the European Securities and Markets Authority was not accessible to everybody. No matter, which device and which browser you are using, you would not get their information online. We therefore have lists of the data available to us here. In contrast to the official lists, our ones include links to Credit Rating Agencies’ websites. This makes it easy to get an overview of all recognized agencies and to contact Credit Rating Agencies. Please ask us for updates.

Our list is based on the publication of the European Securities and Markets Authority on June 18, 2020. The European Securities and Markets Authority’s last update of this list was on November 14, 2019.

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Civil Address

Advisors, Analysts, Clients, Data, Experts, Investors, Read

Every rating has to start with the unequivocal identification of people. It is not just about the identity of debtors and their civil address registration, but also that of managers in companies such as board members, or who else is responsible for a legal entity. In order to enforce claims against a natural person, in most legal systems around the world the address at which a person is registered is important. A personal guarantee from a managing director is worthless to creditors if their whereabouts cannot be determined or if an alleged address proves to be incorrect.

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General Approach to Find a Current Address for Someone

A general approach to find a current address for someone could generate the following data:

  • The person’s private address / current home address, as well as any known old addresses.
  • The social media profiles, if they exist.
  • Photos from the Internet.
  • Access to the email addresses to can the person you are looking for by email.
  • Various user names that are used on the Internet.
  • Also acquaintances, relatives and friends might be shown, which is particularly interesting if you know family members.
  • Current bankruptcy applications or whether there have been ones in the past.
  • Search for the phone number and get the landline number and/or the mobile phone number.
  • Training and employment of the person you are looking for (schooling and academic education)

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Airport

Rating Airports

Criteria, Methodologies, Read

Credit ratings play an important role for airports and their operators, since in most cases the capital requirements for airports can only be met when bonds are issued. Ratings are used to assess airport liabilities both when issuing bonds and when trading bonds.

The rating system applies both to independent airports and to companies with several airports, which are usually in full operation with an active commercial service. It is important to have a sufficiently long company history that allows conclusions to be drawn about the management.

The airport criteria apply to both issuers and certain borrowings with a broad revenue pledge, for example, if the entire operating income of the airport company serves as collateral. Debts that can be repaid from limited sources of income such as rental contracts and independent project debts for fuel supply, rental car and cargo handling facilities are also subject to credit ratings.

Both new ratings and the monitoring of existing ratings are special cases of ratings for debts from infrastructure and project financing. Risks and limitations of the methodology, which are common to all infrastructure and project financing debts not discussed here, are therefore considered separately.

Qualitative guidelines were developed for the rating of airports, which are relevant for the assessment of project risks. The relative impact of qualitative and quantitative factors varies between companies, as there can be large differences between airports, not only in terms of technology, but also economically.

While airport analysis includes taking into account risks common to all infrastructure and project finance debt, earnings risk, as a general guideline, has the most direct impact on airport ratings. According to the “weakest link theory”, the weakest link can result in its stronger analytical weight.

The most important assessment factors for airports are the earnings risk and the volume: This takes into account the role of the airport as well as the socio-economic and demographic basis of the surrounding region and, if applicable, the exposure to competing alternatives, the breadth and variety of products and services offered by airlines at the airport influence.

In order to analyze the sales risk, passenger and freight volumes and prices and price developments are examined. The generation of revenue or cash flow is taken into account in accordance with the legal framework of the airport, including the provisions of the contractual or regulatory framework, which forms the basis for the cost recovery in the revenue generation from airlines and passengers.

The rating questions the development and renewal of the infrastructure: quality, planning, management and financing of the development and renewal of the infrastructure are taken into account.

From a purely financial perspective, the debt structure is recorded, the composition of financial instruments, security, additional leverage tests, distribution limits and financial triggers. The financial profile reflects the assessment of the financial and operating metrics on a historical and forecast basis, including sensitivity analysis, and the composition of the financial instruments, examined by additional leverage tests, distribution limits and financial triggers.

Across the entire airport portfolio in the world, ratings generally range from the lower end of the “AA” category to the “BB” category. In countries with a high country risk, the country rating may set an upper limit. The entire rating range is broad, but the vast majority fall into the investment grade categories “A” or “BBB”. In most countries, the operation of airports cannot simply be stopped without fear of consequences for the country rating. The ratings for states and airports are therefore to a certain extent interdependent.

Airports generally have a higher leverage than typical business units and deal with business partners with low credit ratings from “investment grade” to “speculation”. As is so often the case with infrastructure investments, their business is typically geographically concentrated and may be subject to jurisdictional issues or legal issues that may limit or support the underlying loan.

Because of these risks, it is unlikely that an airport can ever be rated in the highest rating categories. The current corona crisis has made it particularly clear for airports how a virus can practically change the sales outlook overnight.

However, there are several reasons why most airports worldwide remain financially sound and despite these risks have ratings in the “investment grade” categories. In general, competition is more restricted because the capital-intensive nature of airports in connection with the regulatory hurdles of a public supply industry creates strong entry barriers.

These entry barriers include the cost of land acquisition and airspace needs, significant environmental barriers and the resistance of the population affected by land acquisition and noise. In addition, airports generally operate on a cost recovery model that can help keep cash flow relatively stable. While the aerospace industry continues to go through profitable and unprofitable cycles, airports have a strong repayment history, so the rating assumes that this will continue.

Patent Rating

Definitions, Methodologies, Read, Systems

Innovation rating and patent rating have different tasks, but are interrelated. An innovation rating is used to assess a company’s ability to compete with other (innovative) companies through innovation. The patent rating, on the other hand, is a future-oriented judgment on the relative intrinsic value of a patent and requires a system of classification. The classification system is used to organize patent documents and many other technical documents in relatively small collections based on common topics.

When should a patent rating be issued, when should this assessment be reviewed and possibly updated? In large organizations, this is already an organizational issue if this task is performed by a formal patent committee. The patent committee reviews the decision to file a patent application.

In practice, patent management ranges from the invention, to the processing phase in a patent committee or committee, if set up, in which inventions are reviewed and decisions are made as to whether a patent application should be filed or not, to the patent application process from the first filing to the granting of the (foreign) registration, patent maintenance and patent portfolio management. Patent ratings are particularly an instrument of patent portfolio management because it helps to analyze the structure of the portfolio.

Different technology areas can have different priorities depending on the technology and business strategy of the company. The maturity of the invention may result in some delay in the process. Certain cases may offer options for additional divisional applications.

Transparency is crucial for the qualification of the rating inputs. If a rating is repeated within a very short time, it should reliably deliver a comparable and verifiable result. As with any other rating system, validity and reliability must be checked.

A rating agency is committed to a code of conduct. The person submitting the rating should conduct the rating free of any biased assessment. Possible conflicts of interest must be disclosed. Any changes to the assessment of a particular case should be recorded, indicating the new assessment, who made the change, and the reasons for making the change, along with supporting material.

The fact that technology, companies and industries change over time is an important argument to justify why assessments should be reviewed at key points in the patent process and updated as necessary.

In addition to the perception on the market, patenting should be dealt with at all other milestones in the patent process and should be dealt with as needed, e.g. For example, if the patent examiner requests “official actions”, if the case takes place in another country and the patent application becomes due.

The importance of intangible assets is increasing. The concept of ratings, as it has been known since the 19th century for assessing the reputation of corporate partners and the quality of securities, can also be used in the world of intellectual property. If an asset cannot have any value, it is not an asset. Even air is an asset, because air can also become an asset paid for when it becomes scarce.

The nature of innovation means that inventions can vary from incremental to radical, can refer to products, services, processes or business models. The innovation process includes ambiguity, controversy and non-linearity, and this is also reflected in the inventiveness. The importance of each invention is a crucial question that needs to be answered.

The diversity of such intellectual property, both in terms of its maturity, geographic coverage and applicable technology, means that a rating scheme should bring benefits. The variety of patent applications ranges from semiconductor and computer technology, electrical machines, telecommunications, life sciences including the analysis of biological materials and biotechnology, optics, medical technology and pharmaceuticals to environmental-related technologies.

Patents give their holder freedom of action and protect product differentiation. Used in an entrepreneurial way, patents allow to generate income and grant business influence. Patents often enable technology to be put into practical use, bring cost competitiveness and support technology out-licensing. Patents help to organize the division of labor in the economy.

At this point it is not to be discussed whether the legal figure of the patent brings any economic benefit at all. There are strong arguments that costs and benefits are cancelling out. This is especially true if one takes into account not only the officials involved, but also the considerable resources that have to be kept in the company for this.

Patenting can be expensive, so costs need to be carefully considered. Patents need to be managed well. In companies that have thousands of patents, rating systems are imperative to keep track of these company assets. Cost management includes planning, coordination, control and reporting of all cost-related aspects. Identifying all costs and making informed decisions about options is not an easy task, especially in large companies. When purchasing patents, it is important to check which ones offer the best value for money. Systematization can also be carried out using a rating system.

The simplest rating system for any company is a black and white system. For example, a very simple two-step scheme is to label cases as either strategic or tactical, or even “in use” or “not in use”. If, in addition to “black” and “white”, the “grayscale” is also taken into account, one can speak of a rating system.

A number of questions arise for companies with patents or patentable inventions. Should the invention be implemented in “our” products or services? Is the invention likely to be implemented by a third party? Does the case offer licensing options? Does the invention relate to a unique selling proposition or a central function of the company? What is the possible use of the invention in the future, especially when it is linked to basic research?

In many companies, the establishment of a professional rating system for patents overwhelms the resources available. The rating of patents is therefore assigned to specialized rating agencies. The choice of rating approach should be formally documented and made available to the key players in the process of inventing and patenting. Each rating scheme that is designed and implemented must be consistently maintained over a certain period of time in order to ensure comparability.

As with any other rating system, the patent rating must also consider the conditions under which a methodology is changed and the standards of the assessment adjusted. A few decades ago, recording the data alone was a tremendous challenge. However, the assessment of cases is recorded today in the IP data management system. The associated data fields of the rating have to be treated with the same professionalism as all other key data fields that support the most important patenting processes. The rapid development of information and communication technology gives users of rating systems decisive competitive advantages.

Innovation Rating

Methodologies, Processes, Read, Systems

The basic idea was already known to the Romans: the word “innovation” is developed from the Latin verb innovare (renew). As a noun, it means “newness” or “renewal”. The term is used in everyday language in the sense of “new ideas and inventions” and for their basic relationships.

An innovation rating traditionally includes the expectation following an investment budgeting decision that a new product or a new service will generate revenues. Relevant innovation ratings deal not only with products or services, but also assess process innovations and concept innovations (business and organizational innovations, business model innovations).

The number of employees, the geographic areas of activity of the company, the location of company headquarters, the sales and earnings in relation to research and development spending are indicators which matter.

Successful companies are run so that they generate ideas through their employee management. Not only their staff play a role in this analysis, but also consultants and freelance employees. However, the expenses for advice can be a deceptive indicator if other additional aspects are not used to measure performance.

Innovation and management culture in a company are closely related. The scope of customer feedback is just as relevant here as complaint management, whether from customers or employees. The question of which channels the management of a company uses to resonate with customers and employees, whether through targeted surveys, work groups, social media or big data analysis, can be instructive.

Rating analysts can use interviews with management to determine the industry and company-specific obstacles to innovation management. These obstacles range from legal barriers to technological difficulties. A number of criteria are used for the evaluation of internal as well as external obstacles.

The share of new products and services in earnings is broken down chronologically by cohort. In addition to data from external accounting, data from internal accounting can also be used to, for example, forecast innovation-related cost savings. To map innovation cycles, plans are analyzed in a target and actual comparison.

The Inventor’s Patent Dilemma

An increasing number of registered patents is an indicator of strong innovation activity. Filing a patent is not recommended for every invention, even if the patentability conditions are basically met. If the company cannot defend its patent after it has been granted or if the costs of the defense cannot be borne (should the patent be attacked by a third party), waiving the patent may make sense. It can be expensive if an unauthorized use of an invention shall be prohibited.

The innovation rating examines the extent to which inventions by the company can be circumvented: if the inventions can be exchanged using similar procedures that are not protected or cannot be protected, patent protection simulates but vulnerable strength, since imitation in a similar way by third parties must be expected, especially in profitable markets.

Companies often refrain from any disclosure, as is enforced when filing a patent, if the disclosure only enables a third party to reproduce and copy the invention: Confidentiality can mean better protection. For large companies, however, keeping knowledge secret in light of natural employee turnover can be a particular challenge. Therefore (as for other reasons) the company size also plays a role in the innovation rating.

Too high complexity of inventions can also speak against patent applications. If inventions consist of a multitude of elements that would have to be individually protected, patent protection would generate disproportionate costs. Protecting only certain, particularly important parts of a product with a patent can be a sensible strategy here, but it requires corresponding specialist knowledge in the management of patent applications and exploitation. The innovation rating therefore examines what conditions the company has created to meet these challenges. and which combinations with alternative protection mechanisms it can also use.

Successful Innovation Requires Taking Smart Risks

Innovation ratings require the management of the company to be profiled. The profiling helps to understand to what extent the management is willing to take risks in order to increase the innovative strength of their company. The extent to which employees and management are able to bring about and implement innovations in terms of corporate culture is of central importance.

Organizational-theoretical considerations as well as empirical surveys can help to reflect the suitability of virtual teams, the project or matrix organization as well as functional organization. Innovation rating is therefore also based on the company’s human resources. The human resources department provides figures on employees working in research and development, on the level of education and the use of further training measures, the professional experience of employees and employee satisfaction. The company’s internal methods of personnel and management rating are to be examined with regard to the extent to which priority is given to innovation goals in the assessment and incentive systems.

The innovation rating is not just the result of a point evaluation process or a simple computer model, but has to be understood as a committee-based process which is aimed at the integration of all aspects that are decisive for the ordinal classification of a company’s innovation success. The term “innovation rating” therefore designates both the assessment process and the result of the rating process in the form of a “grade”. The innovation rating provides both relative – namely in comparison to other companies – and absolute information, for example if a low rating indicates the complete lack of ressources for innovation.

Equity Rating Repair

Criteria, Definitions, Methodologies, Models, Performance, Read, Regulations, Repairs, Scales, Symbols, Systems

Stock instruments issued or to be issued and / or traded on certain stock markets may be the subject of ratings. Stock ratings reflect the risks associated with the creditworthiness of the issuer and the stock market liquidity of an instrument. However, they do not address the risk of loss associated with price changes and other market conditions, nor do they consider the reasonableness of prices for their market value. Ratings assigned at national level cannot be compared across borders and are assigned using national rating scales.

Such equity ratings are usually the result of regulatory intervention by the state to prevent investors and issuers from being harmed by malpractice on the stock exchanges. The requirement to issue equity ratings is therefore to be understood in some states as a reaction to regulatory requirements. To the extent that such requirements do not currently exist or are not applicable, share ratings are based on market practice.

Financial instruments affected by equity ratings include, but are not limited to, common shares issued by financial and non-financial companies. The equity rating method does not apply to shares issued outside of a public offer by private funds or other investment instruments, or to preference shares, as these are accessible through their own methodologies.

Stock ratings are about the elements to be valued as part of the stock rating process. Stock ratings are supplemented by analytical considerations regarding the issuer’s credit rating. The equity rating methodology should therefore not be viewed in isolation, but should be read in the context of the global criteria reports of ratings for financial and non-financial companies.

Share ratings are also referred to as buy, sell or hold recommendations. A strong buy recommendation can be expressed, for example, by a double plus ++ and a simple buy recommendation by a simple plus +, vice versa in sales recommendations minus – and double minus –. If the rater gives neither a recommendation to buy nor to sell, the recommendation “hold” e.g. can be expressed by a circle symbol o.

Analyst opinions expressed as buy and sell recommendations are as fast-paced as the stock market itself, as the Corona crisis recently showed: If the price of a share falls, the sell recommendation can quickly turn into a buy recommendation.

Because buy and sell recommendations depend on daily market price fluctuations, equity rating repair does not refer to the question of whether a stock is over- or undervalued.

Rating repairs therefore relate to the awarding of share ratings, which give investors an independent opinion on the creditworthiness of the issuer and the liquidity risk associated with their shares. The purpose of such stock ratings is to provide an estimate of the liquidity risk an investor takes when purchasing a particular stock security in order to measure, in a timely manner, how easy or difficult it will be to sell those instruments if the investor so decides.

The analysis includes evaluating the stock’s historical stock market behavior in relation to presence and traded volumes, as well as the relationship between the movements of the stock and the financial situation of the company and the industry in which it operates.

Creditworthiness and market liquidity risk are the most important factors in the equity rating for which evidence can be produced. At national level, equity ratings are therefore based on two types of analysis: issuer creditworthiness and market liquidity risk. The combination of these two factors leads to the determination of a company’s equity rating.

The purpose of a stock rating is not to assess the risk of default on such stocks. Shares are equity securities and they represent ownership, not just a claim. Therefore, they cannot be in default. Because stocks do not have specific payment obligations, the stock rating is about the likelihood that the issuer will continue to operate. Conceptually, equity ratings indicate that the more creditworthy an issuer is, the greater the likelihood that its shares will continue to be traded throughout the business cycle. In the current case of the bankruptcy of Wirecard, a company listed in the German stock index DAX, it would have been the task of a stock rating to signal the probability of such an event by a low rating.

Stock ratings reflect risks related to the creditworthiness of the issuer and the market liquidity of the stock. For the reasons outlined, however, they do not deal with the risk of losses associated with changes in share prices and other market conditions, nor with the adequacy of the market price of a particular security. Equity ratings are therefore not suitable as trading signals, for example to buy and sell a stock within a few hours. Equity ratings are also not the basis for trading Contracts for Difference (CFDs). Under no circumstances does such analysis result in a recommendation to buy or sell a particular security. Share ratings are therefore not a special form of share price estimates, nor are share prices used to determine forecasts of liquidity risk.

The information required to carry out the risk analysis and assign ratings is obtained from various sources such as the issuer, industry data and other relevant sources. For the specific analysis of the liquidity of the share, the statistical data are obtained from market sources that are required to be able to calculate the relevant stock market indicators.

The analysis usually includes five years of company history and financial data. The information required to assess the creditworthiness of the issuer can be requested directly from the issuer or obtained indirectly through agencies. Once the necessary information has been collected and checked, an analysis can be carried out using a uniform method.

Forensic Rating

If criminal energy is involved – as allegedly in the case of the Wirecard company – the stock rating cannot easily detect the counterfeit. Rating agencies emphasize that the information received from the issuer or its representatives will not be reviewed or verified (again). While ratings look to the future, auditors’ attestations are there to confirm that the company’s report agrees with the facts it finds.

In order to counter fraud cases like WorldCom, Enron and now apparently also at Wirecard and to give warning signals to investors, a forensic rating is required. Forensic ratings typically deal with individual offenses, unlike criminology, which examines the basics of criminal behavior. The concept of “forensic science” – like the concept of “credit rating” – often does not meet the criteria for scientific research in the narrower sense. It is understandable that forensic ratings are predominantly carried out using methods that are well established, standardized and as undisputed as possible. Innovation and creativity must be severely restricted for reasons of comparability and fairness. The scientific principles of objectivity, reliability and validity also apply to criminal investigations. It is very important to ensure the highest possible quality standard as with every rating.

Auditing

Rating also does not replace the work of the auditor, because the auditor’s report is the overall opinion of an auditor after the audit of the annual financial statements. In it, the auditor assesses the conformity of the annual financial statements and the management report with the accounting regulations applicable to the company. An assessment is only made as to whether the situation of the company has been correctly represented, but no prognosis of the company’s creditworthiness and the liquidity of the share is given. A holistic assessment of the economic situation, which also requires a considerable degree of industry knowledge, is generally not carried out. The auditor’s report may only be issued after the material examination has been completed.

For securities without historical stock market information such as a first stock offer or with insufficient information, the analysis can practically only be based on the creditworthiness of the issuer. After approximately one year of trading and records of stock exchange transactions, equity liquidity is included in the analysis.

The issuer’s creditworthiness is expressed in its issuer default rating or its long-term national scale rating. Depending on the type of company, these are calculated according to the respective methods for non-financial – e.g. Chemical companies, technology companies) and financial companies (e.g. banks and insurance companies).

As with credit ratings, the purpose of credit analysis is to classify the likelihood that a company will meet its financial obligations (or in other words, the risk of default). The company’s operational and financial profile, its overall creditworthiness and thus the long-term rating of the issuer are good approximations of the risk of a company’s future cash generation capacity.

The equity rating includes qualitative and quantitative variables to measure the operational and financial risks of an issuer and to determine its credit profile in accordance with the concepts contained in the global rating methods for financial and non-financial companies.

As already indicated, an ex-post analysis is carried out to assess exchange liquidity, which is naturally dynamic and is based on the monitoring of certain relevant market indicators for measuring the liquidity of a share.

The world’s stock exchanges are very different. What is relevant for investors is the quality of the paper on the stock exchange where it can trade. Therefore, stock ratings are placed in the context of the country’s stock exchange. The analysis may include elements that reduce liquidity, e.g. for example, the series of a particular share that grants greater rights to another series of that security. The relative importance of the individual risk factors can vary. As a rule, indicators that indicate the low liquidity of a particular stock limit their rating to the lowest range on the scale.

The trading history of the share, the percentage of free float and the development of market capitalization and daily trading volume are factors that influence the assessment of the liquidity level of the share. The liquidity of a security is measured by the recent development of these and other stock market indicators, but essentially by the presence of the security on the market. Although the rating depends on the recent performance of the equity liquidity indicators, the track record of the indicators being assessed is critical to determining a rating.

  • The market presence is the main measure that is taken into account when determining market liquidity. The number of days on which an instrument has been processed in relevant amounts within the last 180 working days plays a role here. This indicator provides a measure of the number of days on which transactions relevant to a share were registered.
  • The number of days on which an investor would have been able to get out is important for assessing the liquidity of a share. Companies in which transactions are recorded almost every day have a high stock exchange presence, which speaks for a high level of liquidity.
  • Market capitalization – and thus indirectly the share price – also plays a role in the share rating, because it reflects the market value of a stock corporation at a certain point in time. The market capitalization is calculated by multiplying the share price by the number of shares. By looking at the market capitalization, there is a ranking that the companies rank according to their market size. Rapid, frequent and unilateral changes in market capitalization reflect the trend and volatility of market value over a period of time.
  • The free float relates to shares that are not held by majority or long-term shareholders. Free float in stock corporations means the total number of shares available for exchange trading. The higher this percentage, the more liquid the share should be. When the trading volume is recorded, the total value of the transactions in a share is taken into account.
  • The average daily trading volume is determined by the presence on the stock markets and the market capitalization and reflects the monetary value of the average daily transaction volume for a specific security in a specific period. The trading volume is calculated by the number of securities traded in a period multiplied by the price of each transaction. The total volume traded by an issuer is compared to the total volume traded by the entire market.

Share ratings express the “option character” of a company’s shares. According to the option price theory, the shareholder can also be modeled as a buyer of a purchase option. By paying a premium – the share price – the buyer receives the right, but not the obligation, to continue operating the company. If the value of all the assets of a company falls below the value of the creditors’ claims against the company, the shareholder does not have to replenish equity, but can leave the company to the creditors for liquidation as part of an insolvency procedure.

Since the company’s credit rating also includes the risk of default, it characterizes the option character of the share. The lower the share rating, the greater the option character of the share.

Assets

Rating Assets

Definitions, Methodologies, Read

Is a musical work a rateable asset? Or is just a metal like gold a rateable asset? RATING EVIDENCE and RATING©REPAIR relate to the evidence and to the repair of ratings for specific assets or counterparties. In the following the focus will be on the definition of assets. Since the word “asset” plays an important role in the differentiation of rating types such as “credit rating”, “fund rating”, “real estate rating”, “start-up rating”, “commodity rating”, here are some ideas on how to identify things which are accessible to a rating methodology. Since the first bond ratings were devised as forward-looking opinions of the relative credit risks of financial obligations issued by non-financial corporates more than a century ago, rating systems have evolved in response to the increasing depth and breadth of the global capital markets. Much of the innovation in rating systems has been in response to market needs for increased clarity around the components of investment risk, for inclusion of new assets classes or for finer distinctions in rating classifications.

An “asset” is in its broadest sense a useful or valuable thing or person. More specifically an asset is an item of property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.

While a “tangible asset” is an asset that has a physical presence, is touchable and measurable in meters, square meters, kilograms, e.g. property, equipment, “intangible” is an asset that has no physical presence, such as patents, copyrights, goodwill and trademarks. Intangible assets are no less “real” than tangible assets, but the latter are also called “real assets”.

In financial accounting, an asset is any resource owned by a business or an economic entity. The monetary value of anything that can be owned or controlled to produce positive economic value can be recorded in a balance sheet. Long-lived assets such as buildings, equipment and furniture that cannot be easily converted into cash are called “fixed assets”, while cash and assets that are expected to be consumed or expended or converted into cash within the current operating period are called “current assets”. To develop a single set of high-quality, understandable, enforceable and globally accepted accounting standards, an asset has been defined as a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise.

Since so called “wasting assets” irreversibly decline in value over time, this may be accounted for by applying depreciation under accounting regimes. Vehicles and machinery, mines and quarries in use are tangible wasting assets, while expiring options and insurance policies are intangible wasting assets.

An asset that has a value based on a contract such as deposits, stocks, bonds and derivatives is called a “financial asset“. Financial assets are opposed to non-financial assets. These are property rights which include both tangible property such as land, real estate or commodities and intangible assets such as intellectual property. Whether a financial asset is “held for trading” (acquired or incurred principally for the purpose of selling, or is part of a portfolio with evidence of short-term profit-taking) or “held-to-maturity” (the owner is willing and able to hold it till maturity) are subject-related aspects and are not included in an object-related rating approach. Profiling mirrors subject-related issues, while rating mirrors object-related issues.

The law selectively “codes” certain assets, endowing them with the capacity to protect and produce wealth. With the right legal coding, almost any object, claim, or idea can be turned into an asset. To pick and choose among different legal systems and legal devices is a key competence for creating an asset, which is in turn accessible to an evidence-based rating methodology. Since codability is given for almost anything, ratings can help under many more circumstances than just decisions about bond investments.

An evidence-based rating method for assessing an asset can be developed mainly under the following conditions:

  • The investor can choose from various alternatives in the relevant asset class. He can acquire one or the other asset within the asset class. It is not critical whether the asset can be sold again: a pension or life insurance policy, for example, can be inalienably linked to a specific person. At the time of purchase, however, there might be various alternatives to consider. If there is no choice, for example in the case of a coercive system of compulsory levies, no ratings are required to decide, since there is nothing left but to follow the applicable rule. The freedom to choose is an inalienable prerequisite for any meaningful rating.
  • The economic benefit of the asset can be measured by a counting unit – numéraire – such as euros, dollars or grams of gold. The numéraire is a basic standard by which value is computed. While usually the legal tender, the numéraire can be any tradable economic entity in terms of whose price the relative prices of all other tradables can be expressed. There are considerable problems with the choice of this computing unit, especially when viewed over the long term. Currencies can be reformed and gold can be banned.
  • There has to be a legal framework for an asset, a set of promulgated rules or procedural steps, in common law established through precedent or in a code jurisdiction made explicit in statutory or regulatory law through which judgments can be determined in a legal case. An asset-relevant doctrine comes about when a judge makes a ruling where a process is outlined and applied, and allows for it to be equally applied to like cases. When a credit risk is rated, the risk that an entity may not meet its contractual financial obligations as they come due and any estimated financial loss in the event of default or impairment is evaluated. The contractual financial obligations addressed by a credit rating are those that call for, without regard to enforceability, the payment of an ascertainable amount, which may vary based upon standard sources of variation (e.g., floating interest rates), by an ascertainable date.
  • It is not enough to know about rules. It is equally important to form an opinion on how likely it is that there is a willingness to play by the rules. A credit rating addresses not only the issuer’s ability to obtain cash sufficient to service the obligation, but also its willingness to pay.

An “asset” is a resource with economic value that an individual, organization, or country owns or controls with the expectation that it will provide a future benefit. A “rating” classifies the probability that expectations will be met. Consequently, “rating evidence” is about the evidence, reliability and validity of the classification of this probability. In addition to assets, contractual partners can also be the subject of a rating. If counterparties are rated, a rating classifies the probability that they will meet the expectations placed on them.

While rating assets involves a specific interest of a decision maker to choose among investments and to allocate ressources, a social credit rating calls for the establishment of a unified record system for individuals, businesses and the government to be tracked and evaluated for trustworthiness.

Next Generation Financial Services: Digital transformation and new services

Books

Oliver Everling and Robert Lempka (editors): Next Generation Financial Services: Digital Transformation and New Services, Frankfurt am Main 2020, Frankfurt School Verlag, 480 pages, ISBN (print) 978-3-95647-176-6.

The digital transformation of the financial industry is in full swing. On the one hand there are consolidation and cooperation processes between banks and fintechs as well as between fintechs among themselves, on the other hand new digital providers, services and products keep coming onto the market. These new offers open up strategic and market potential for the industry and generate new customer behavior. The entire industry is subject to constant change and a high degree of innovation on the part of both the provider and the customer.

The book presents this digital transformation process in the financial sector and describes various digital services and business cases. Established providers discuss their digital strategy, established fintechs describe their business models and new start-ups present their innovative products and services. The book thus provides a profound overview of the status quo and the further progress of digitization in the financial industry.

The authors come from the financial services industry, fintechs, consulting firms and academia. They give the book a high topicality and practical relevance. The book is aimed at those in the industry who are involved in digital strategy and product development and who are significantly driving the digital transformation of the financial industry.

Oliver Everling und Robert Lempka (Herausgeber): Finanzdienstleister der nächsten Generation – Digitale Transformation und neue Dienstleistungen. Frankfurt am Main 2020, Frankfurt School Verlag, 480 Seiten, ISBN (print) 978-3-95647-043-1.

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KYC Risk Rating

Compliances, Methodologies, Procedures, Read, Regulations, Systems

Under strict Anti-Money Laundering (AML) regulations put in place by national governments, the European Union (EU), the Financial Action Task Force (FATF), and the United Nations (UN), all financial institutions and many types of companies are required to closely monitor their clients’ accounts and report any suspicious activity. These legal requirements often take the form of Know Your Customer (KYC) policies and KYC risk ratings, which are essential in preventing and reducing financial crime.

Excluded from the general test are “standard small customers” who do not wish to undertake particularly extensive or extraordinary business transactions and who have been classified by your rating system in advance in a correspondingly safe risk class. Nevertheless, the origin of funds and assets must generally be clarified. The details of the planned customer relationship such as scope and payment transactions must be rated and recorded.

KYC risk ratings are also important from the perspective of a variety of anti-terrorism and compliance laws and regulations. In particular, various national laws and regulations by international organizations prohibit doing business with certain persons and countries. For example, failure to comply with United States special regulations threatens financial penalties, from fines for executives to the removal of all business licenses in the United States. In addition, the reputational risk that can result from negative headlines in the absence of control is not to be underestimated.

In financial institutions characterized by limited resources and siloed solutions, the response to this has very often been to throw people at the effort. However, this has only added cost and complexity to the process and is not a long-term, sustainable solution. Therefore, there is a need in most organizations for a single, integrated technology platform that efficiently manages all KYC policies and regulatory compliance requirements from initial take-on right through the entire client lifecycle, including regular, ad-hoc and event-triggered reviews, as well as data and documentation refreshes.

All kinds of ratings can be affected, from credit ratings to sustainability ratings.

With a requirement to ensure lifecycle compliance to KYC regulations both on a local and global level, financial institutions and many other companies are necessitated to perform regular client reviews based on assigned risk ratings. KYC touches on the process you put customers through to engage with your business. KYC is considered as the future of the client onboarding process since an efficient identity verification solution helps institutions meet regulations, generate new revenue streams, and reduce risks and costs.

Global regulations highlight KYC as fundamental to a strong AML compliance program. With an appropriate KYC risk rating tool you are gathering the data you need to effectively structure your AML program and take a risk-based approach, comply with regulations and prevent financial crime. Ratings serve as the backbone of global anti-money laundering efforts.

Conducting KYC checks is a process that takes place at onboarding, i.e. identifying your customer and verifying that identity. KYC risk ratings help since KYC is an ongoing process to help you comply with requirements and continuously feed back into risk management and business strategy. You need to ensure that you know who your customer is, what activity you should expect from him, and the overall risk he presents to your organizaiton. KYC risk ratings enable you to monitor that risk and mitigate it.

In the case of legal persons, the type of company, activity, industry, sector code, number of employees, ownership and corporate structure, as well as the most important (expected) financial ratios must be recorded.

In the case of natural persons, in particular the nature of the profession and the purpose of the business relationship must be recorded. In the case of Politically Exposed Persons (PEP), the function and the place of exercise must also be recorded.

Take the System for Award Management (SAM) for an example. Both current and potential government vendors are required to register in SAM in order to be awarded contracts by the Government. In the United States of America, vendors are required to complete a one-time registration to provide basic information relevant to procurement and financial transactions. Vendors must update or renew their registration annually to maintain an active status. SAM allows Government agencies and contractors to search for your company based on your ability, size, location, experience, ownership, and more. In this way, fulfillment of KYC requirements becomes a marketing tool.

The exact meaning of KYC and related acronyms can change across geographies, with some regulators preferring one set of terminology over another.

  • US regulators refer to Customer Identification Program (CIP) when it comes to a check against relevant sanctions lists and gathering basic customer information (name, address, date of birth for an individual and an ID number) to form a „reasonable“ belief that the true identity of the customer is known.
  • Identity Verification (IDV) tools can be used to verify the identity of a customer, usually by using electronic and non-documentary means to do this.
  • A Customer Due Diligence (CDD) is said to provide more information regarding the individual or entity, the line of business they are in or more details about their management or corporate structure and whether there is an politically exposed person (PEP).
  • An Enhanced Due Diligence (EDD) is specifically designed for dealing with high-risk or high-net worth customers and large transactions. Because these customers and transactions pose greater risks to the financial sector, they are heavily regulated and monitored in order to ensure that everything is above board. Companies and financial institutions were first compelled to conduct EDD by the USA PATRIOT Act in 2001, a provision which is still in effect today. The Patriot Act also requires that offshore banking institutions, private banking organisations, and correspondent accounts abide by EDD regulations and laws. There are several characteristics that distinguish regular KYC policies from EDD policies. EDD policies are considered to be “rigorous and robust”, meaning that they require significantly more evidence and detailed information to be collected. The entire process of EDD must be documented in detail, and regulators should be able to have immediate access to the data. Professionals are often hired in order to analyse data that is collected regarding clients, and the reliability of information sources is of utmost importance.

By setting transaction monitoring scenarios accordingly, a rating helps to react to the expected activity from that client, for example, the volume, value, and frequency of payments across an account. Throughout the relationship, when those thresholds are breached, rating upgrades or downgrades alert you about

  • where this unusual behavior is coming from,
  • report it if suspicious, and
  • realign expectations if this is to be a new normal for that customer.

All persons involved in the creation of the KYC and subsequent changes to the KYC master document must also be logged.

Key to achieving a reasonable assurance in KYC discovery is acknowledging that, no matter the quality of information used or effort spent on research, it is impossible to be certain that any customer is entirely free from risk. It is always a matter of grades as expressed in ordinal rating scales.

Realising that 100% certainty is not attainable forces compliance officers to take realistic, risk-based approaches to KYC consideration. The prevention of financial crime is a matter of probabilities. By acknowledging that risk can never be eliminated entirely, you can craft anti-money laundering policies by using rating technologies that are both as effective and as unburdensome as possible.

Even when using rating technologies you must still periodically check up on low-risk clients and accounts to ensure that nothing is unusual or out of place. You need to be aware that the risk of criminal financial activity cannot be entirely eliminated.

Reasonable Assurance

A “reasonable” assurance varies depending on various factors, including different national anti-money laundering legislations and the type of financial institution involved, and pertains to how much information should be collected about a customer. Rating whether or not particular customers are high risk and which processes or investigations must be completed if they are, allows a financial institution a reasonable assurance. They must then decide how much is an appropriate amount of information to gather. A good rating allows the financial institution to determine how much time they should spend monitoring the customer’s account, if any.

KYC Remediation

The different ways to go about KYC remediation are pivotal for preventing your company from getting involved in corruption, the terrorist financing, and money laundering. A rating-based KYC remediation tactic could be to screen, verify, and identify customers according to its KYC risk rating. There are many rating products that a company can use to accomplish this efficiently, and it may also be done manually. The remediation process is where they clear up any contradictory data, organize the information they have acquired, and determine what else is left for them to find out about the client.

If a client might be able to launder money or partake in other corrupt activities without any red flags being raised by your rating system your company could get in serious legal trouble down the line, possibly leading to fines and even jail time for employees. Because of their central role in the financial sector, financial institutions are most strictly regulated in regards to appropriate rating systems. They have the responsibility of reporting suspicious activity and helping the government to ensure that money laundering does not occur. Being fully aware of what is going on with your clients’ ratings is the first step towards being protected against backlash from illegal transactions.

As soon as the KYC remediation has been successfully completed, the company can then determine the risk that the client poses and continue to add to their portfolio. This step helps to decide whether the company or financial institution must report the client to authorities for suspicious activity or potential corruption.

KYC Risk Rating

A KYC risk rating is simply a calculation of risk: either that posed by a specific customer or that which an institution faces based on its entire client portfolio. It makes sense to calculate both of these risk ratings as each of them is equally important.

KYC risk ratings might take the following data into account:

  • Global sanction lists
  • Narrative sanctions
  • Indirect bans
  • Politically Exposed Persons (PEP)
  • Family members and related persons
  • State-owned or publicly-owned enterprises
  • Global law enforcement lists
  • Negative reporting
  • Iranian economic interest
  • Ship information
  • System for Award Management (SAM)

Institutions gather as much data as they can about their customers, and they then compile this into a portfolio. Once the portfolio is completed, they closely analyse the information that they have obtained, and they determine the KYC risk rating of that specific client. If the risk rating is high, that client will be consistently and closely monitored. If the risk rating is low, the client will still be monitored, but not as diligently.

Millions of transactions occur every day throughout the world, meaning that institutions constantly receive vast amounts of data that need to be analyzed in rating systems. KYC risk ratings allow for institutions to quickly and efficiently sift through this information. Many of the KYC risk rating tools are technology-based and at least partly automatized, as manually organizing large quantities of data is ineffective and takes far too long.

A KYC risk rating is also essential for another important reason: it allows institutions to make a evidence-based prediction of what they believe a client’s account should look like in the future. A KYC risk rating is useful for determining whether something is unusual, out of place or suspicious. If a client’s transactions begin to diverge significantly from the institution’s predictions, you will be notified and will be able to further analyze the transactions for suspicious behavior.

If you wish to keep your company free from involvement with corruption and money laundering, it is vital that your KYC risk rating system consistently calculates the KYC risk rating of all your customers. Assigning rating symbols is the surest way to determine which clients present a higher risk to your company, thus allowing you to avoid liability and ensure that these clients are monitored appropriately.

Relevant Adverse Information

Relevant adverse information is simply any information that may cause officials to suspect an individual of being involved in a financial crime and can be acquired from any source. Although one source may appear to be more valid than another, all pieces of information may be looked at. Common sources include the Internet, the media, and other assorted databases. Specific individuals may even provide authorities with relevant adverse information such as proof of previous crimes, drug smuggling, fraud, scams, embezzlement, and theft, or evidence that a person is currently involved in tax evasion or even terrorist financing. Even if the information does not appear to be directly related to the scheme or suspect that is under evaluation, it can still certainly be relevant adverse information. Relevant adverse information does not need to necessarily be proven true, and it can include suspicions.

All relevant adverse information must be taken into consideration by financial institutions and governments when they are trying to track down financial crime and those who are responsible for it. While one piece of information may not seem as important as another, it can still wind up being the key for arresting money launderers and terrorist financers. Because of this fact, many financial institutions that are heavily regulated by KYC policies are required to constantly be on the look out for relevant adverse information in order to discover any hints or tip offs that may aid their investigations.

One of the most common types of relevant adverse information is the past criminal activity of an individual. If it is suspected that a person may be involved in financial crime, and authorities discover that that person has been previously caught for committing another crime, this gives authorities even more reason to suspect that individual to be involved. In contrast, if a person has no criminal history and is not known for associating with individuals who do, they are then at a much lower risk of being involved in something such as a money laundering scheme.

Another type of relevant adverse information that individuals oftentimes look at is if a person is on a sanction watch list. KYC risk ratings would go done since chances are that it is not for a good reason, and that authorities should be on the lookout for them being involved in any financial crime.

Find Help

Meet the legal requirements and make informed decisions to prevent financial crime and corruption in your company:

  • Rate the size of risk presented to your institution from a financial, regulatory and reputational perspective
  • Achieve top compliance ratings with evolving legislation and ensure a timely and efficient client onboarding
  • Implement a rules-driven, evidence-based rating approach to KYC compliance that efficiently focuses resources on higher risk clients
  • Automate risk-scoring processes throughout the lifetime of the client, minimizing overall risk to your institution
  • Understand the true nature and purpose of the account being set up, investigate sources of wealth and define ultimate beneficial ownership
  • Lower the cost of ownership with a flexible solution that can be adapted to respond to a changing regulatory environment
  • Make use of a standalone module or a fully integrated one with your client lifecycle management solution
  • Have access to a sophisticated rules engines which automatically puts your clients into low, medium or high risk rating categories to gain a clear view of the size of risk presented to your institution from a financial, regulatory and reputational perspective

There is a world-check risk intelligence database which provides accurate and reliable information for substantiated decision-making. Hundreds of specialist analysts around the world gather information from trusted sources such as watchlists, government sources and trusted media. Strict research guidelines are followed.

With our possible partners we are glad to help you find an out-of-the-box, rules-driven solution for all Know Your Customer policy requirements to support regulatory needs across multiple jurisdictions and business lines.

Simplify your business partner screening process with state-of-the-art technology combined with expert knowledge. The world check data is completely structured, aggregated and deduplicated. With flexible deployment methods, you can easily integrate data into a wide variety of in-house screening platforms, cloud-based, or other third-party solutions.

Let us help you with our relevant partners determine all of the client and counterparty data and documentation that is required to support the KYC and regulatory compliance obligations. Make use of dynamic decision tree intelligence to determine the regulatory journey of the client including all the regulations, KYC questionnaires, classifications and risk assessments that need to be adhered to and performed.

KYC Risk Rating

Compliances, Methodologies, Procedures, Regulations, Systems

Under strict Anti-Money Laundering (AML) regulations put in place by national governments, the European Union (EU), the Financial Action Task Force (FATF), and the United Nations (UN), all financial institutions and many types of companies are required to closely monitor their clients’ accounts and report any suspicious activity. These legal requirements often take the form of Know Your Cutomer (KYC) policies and KYC risk ratings, which are essential in preventing and reducing financial crime.

Excluded from the general test are “standard small customers” who do not wish to undertake particularly extensive or extraordinary business transactions and who have been classified by your rating system in advance in a correspondingly safe risk class. Nevertheless, the origin of funds and assets must generally be clarified. The details of the planned customer relationship such as scope and payment transactions must be rated and recorded.

KYC risk ratings are also important from the perspective of a variety of anti-terrorism and compliance laws and regulations. In particular, various national laws and regulations by international organizations prohibit doing business with certain persons and countries. For example, failure to comply with United States special regulations threatens financial penalties, from fines for executives to the removal of all business licenses in the United States. In addition, the reputational risk that can result from negative headlines in the absence of control is not to be underestimated.

In financial institutions characterized by limited resources and siloed solutions, the response to this has very often been to throw people at the effort. However, this has only added cost and complexity to the process and is not a long-term, sustainable solution. Therefore, there is a need in most organizations for a single, integrated technology platform that efficiently manages all KYC policies and regulatory compliance requirements from initial take-on right through the entire client lifecycle, including regular, ad-hoc and event-triggered reviews, as well as data and documentation refreshes.

All kinds of ratings can be affected, from credit ratings to sustainability ratings.

With a requirement to ensure lifecycle compliance to KYC regulations both on a local and global level, financial institutions and many other companies are necessitated to perform regular client reviews based on assigned risk ratings. KYC touches on the process you put customers through to engage with your business. KYC is considered as the future of the client onboarding process since an efficient identity verification solution helps institutions meet regulations, generate new revenue streams, and reduce risks and costs.

Global regulations highlight KYC as fundamental to a strong AML compliance program. With an appropriate KYC risk rating tool you are gathering the data you need to effectively structure your AML program and take a risk-based approach, comply with regulations and prevent financial crime. Ratings serve as the backbone of global anti-money laundering efforts.

Conducting KYC checks is a process that takes place at onboarding, i.e. identifying your customer and verifying that identity. KYC risk ratings help since KYC is an ongoing process to help you comply with requirements and continuously feed back into risk management and business strategy. You need to ensure that you know who your customer is, what activity you should expect from him, and the overall risk he presents to your organizaiton. KYC risk ratings enable you to monitor that risk and mitigate it.

In the case of legal persons, the type of company, activity, industry, sector code, number of employees, ownership and corporate structure, as well as the most important (expected) financial ratios must be recorded.

In the case of natural persons, in particular the nature of the profession and the purpose of the business relationship must be recorded. In the case of Politically Exposed Persons (PEP), the function and the place of exercise must also be recorded.

Take the System for Award Management (SAM) for an example. Both current and potential government vendors are required to register in SAM in order to be awarded contracts by the Government. In the United States of America, vendors are required to complete a one-time registration to provide basic information relevant to procurement and financial transactions. Vendors must update or renew their registration annually to maintain an active status. SAM allows Government agencies and contractors to search for your company based on your ability, size, location, experience, ownership, and more. In this way, fulfillment of KYC requirements becomes a marketing tool.

The exact meaning of KYC and related acronyms can change across geographies, with some regulators preferring one set of terminology over another.

  • US regulators refer to Customer Identification Program (CIP) when it comes to a check against relevant sanctions lists and gathering basic customer information (name, address, date of birth for an individual and an ID number) to form a „reasonable“ belief that the true identity of the customer is known.
  • Identity Verification (IDV) tools can be used to verify the identity of a customer, usually by using electronic and non-documentary means to do this.
  • A Customer Due Diligence (CDD) is said to provide more information regarding the individual or entity, the line of business they are in or more details about their management or corporate structure and whether there is an politically exposed person (PEP).
  • An Enhanced Due Diligence (EDD) is specifically designed for dealing with high-risk or high-net worth customers and large transactions. Because these customers and transactions pose greater risks to the financial sector, they are heavily regulated and monitored in order to ensure that everything is above board. Companies and financial institutions were first compelled to conduct EDD by the USA PATRIOT Act in 2001, a provision which is still in effect today. The Patriot Act also requires that offshore banking institutions, private banking organisations, and correspondent accounts abide by EDD regulations and laws. There are several characteristics that distinguish regular KYC policies from EDD policies. EDD policies are considered to be “rigorous and robust”, meaning that they require significantly more evidence and detailed information to be collected. The entire process of EDD must be documented in detail, and regulators should be able to have immediate access to the data. Professionals are often hired in order to analyse data that is collected regarding clients, and the reliability of information sources is of utmost importance.

By setting transaction monitoring scenarios accordingly, a rating helps to react to the expected activity from that client, for example, the volume, value, and frequency of payments across an account. Throughout the relationship, when those thresholds are breached, rating upgrades or downgrades alert you about

  • where this unusual behavior is coming from,
  • report it if suspicious, and
  • realign expectations if this is to be a new normal for that customer.

All persons involved in the creation of the KYC and subsequent changes to the KYC master document must also be logged.

Key to achieving a reasonable assurance in KYC discovery is acknowledging that, no matter the quality of information used or effort spent on research, it is impossible to be certain that any customer is entirely free from risk. It is always a matter of grades as expressed in ordinal rating scales.

Realising that 100% certainty is not attainable forces compliance officers to take realistic, risk-based approaches to KYC consideration. The prevention of financial crime is a matter of probabilities. By acknowledging that risk can never be eliminated entirely, you can craft anti-money laundering policies by using rating technologies that are both as effective and as unburdensome as possible.

Even when using rating technologies you must still periodically check up on low-risk clients and accounts to ensure that nothing is unusual or out of place. You need to be aware that the risk of criminal financial activity cannot be entirely eliminated.

Reasonable Assurance

A “reasonable” assurance varies depending on various factors, including different national anti-money laundering legislations and the type of financial institution involved, and pertains to how much information should be collected about a customer. Rating whether or not particular customers are high risk and which processes or investigations must be completed if they are, allows a financial institution a reasonable assurance. They must then decide how much is an appropriate amount of information to gather. A good rating allows the financial institution to determine how much time they should spend monitoring the customer’s account, if any.

KYC Remediation

The different ways to go about KYC remediation are pivotal for preventing your company from getting involved in corruption, the terrorist financing, and money laundering. A rating-based KYC remediation tactic could be to screen, verify, and identify customers according to its KYC risk rating. There are many rating products that a company can use to accomplish this efficiently, and it may also be done manually. The remediation process is where they clear up any contradictory data, organize the information they have acquired, and determine what else is left for them to find out about the client.

If a client might be able to launder money or partake in other corrupt activities without any red flags being raised by your rating system your company could get in serious legal trouble down the line, possibly leading to fines and even jail time for employees. Because of their central role in the financial sector, financial institutions are most strictly regulated in regards to appropriate rating systems. They have the responsibility of reporting suspicious activity and helping the government to ensure that money laundering does not occur. Being fully aware of what is going on with your clients’ ratings is the first step towards being protected against backlash from illegal transactions.

As soon as the KYC remediation has been successfully completed, the company can then determine the risk that the client poses and continue to add to their portfolio. This step helps to decide whether the company or financial institution must report the client to authorities for suspicious activity or potential corruption.

KYC Risk Rating

A KYC risk rating is simply a calculation of risk: either that posed by a specific customer or that which an institution faces based on its entire client portfolio. It makes sense to calculate both of these risk ratings as each of them is equally important.

KYC risk ratings might take the following data into account:

  • Global sanction lists
  • Narrative sanctions
  • Indirect bans
  • Politically Exposed Persons (PEP)
  • Family members and related persons
  • State-owned or publicly-owned enterprises
  • Global law enforcement lists
  • Negative reporting
  • Iranian economic interest
  • Ship information
  • System for Award Management (SAM)

Institutions gather as much data as they can about their customers, and they then compile this into a portfolio. Once the portfolio is completed, they closely analyse the information that they have obtained, and they determine the KYC risk rating of that specific client. If the risk rating is high, that client will be consistently and closely monitored. If the risk rating is low, the client will still be monitored, but not as diligently.

Millions of transactions occur every day throughout the world, meaning that institutions constantly receive vast amounts of data that need to be analyzed in rating systems. KYC risk ratings allow for institutions to quickly and efficiently sift through this information. Many of the KYC risk rating tools are technology-based and at least partly automatized, as manually organizing large quantities of data is ineffective and takes far too long.

A KYC risk rating is also essential for another important reason: it allows institutions to make a evidence-based prediction of what they believe a client’s account should look like in the future. A KYC risk rating is useful for determining whether something is unusual, out of place or suspicious. If a client’s transactions begin to diverge significantly from the institution’s predictions, you will be notified and will be able to further analyze the transactions for suspicious behavior.

If you wish to keep your company free from involvement with corruption and money laundering, it is vital that your KYC risk rating system consistently calculates the KYC risk rating of all your customers. Assigning rating symbols is the surest way to determine which clients present a higher risk to your company, thus allowing you to avoid liability and ensure that these clients are monitored appropriately.

Relevant Adverse Information

Relevant adverse information is simply any information that may cause officials to suspect an individual of being involved in a financial crime and can be acquired from any source. Although one source may appear to be more valid than another, all pieces of information may be looked at. Common sources include the Internet, the media, and other assorted databases. Specific individuals may even provide authorities with relevant adverse information such as proof of previous crimes, drug smuggling, fraud, scams, embezzlement, and theft, or evidence that a person is currently involved in tax evasion or even terrorist financing. Even if the information does not appear to be directly related to the scheme or suspect that is under evaluation, it can still certainly be relevant adverse information. Relevant adverse information does not need to necessarily be proven true, and it can include suspicions.

All relevant adverse information must be taken into consideration by financial institutions and governments when they are trying to track down financial crime and those who are responsible for it. While one piece of information may not seem as important as another, it can still wind up being the key for arresting money launderers and terrorist financers. Because of this fact, many financial institutions that are heavily regulated by KYC policies are required to constantly be on the look out for relevant adverse information in order to discover any hints or tip offs that may aid their investigations.

One of the most common types of relevant adverse information is the past criminal activity of an individual. If it is suspected that a person may be involved in financial crime, and authorities discover that that person has been previously caught for committing another crime, this gives authorities even more reason to suspect that individual to be involved. In contrast, if a person has no criminal history and is not known for associating with individuals who do, they are then at a much lower risk of being involved in something such as a money laundering scheme.

Another type of relevant adverse information that individuals oftentimes look at is if a person is on a sanction watch list. KYC risk ratings would go done since chances are that it is not for a good reason, and that authorities should be on the lookout for them being involved in any financial crime.

Find Help

Meet the legal requirements and make informed decisions to prevent financial crime and corruption in your company:

  • Rate the size of risk presented to your institution from a financial, regulatory and reputational perspective
  • Achieve top compliance ratings with evolving legislation and ensure a timely and efficient client onboarding
  • Implement a rules-driven, evidence-based rating approach to KYC compliance that efficiently focuses resources on higher risk clients
  • Automate risk-scoring processes throughout the lifetime of the client, minimizing overall risk to your institution
  • Understand the true nature and purpose of the account being set up, investigate sources of wealth and define ultimate beneficial ownership
  • Lower the cost of ownership with a flexible solution that can be adapted to respond to a changing regulatory environment
  • Make use of a standalone module or a fully integrated one with your client lifecycle management solution
  • Have access to a sophisticated rules engines which automatically puts your clients into low, medium or high risk rating categories to gain a clear view of the size of risk presented to your institution from a financial, regulatory and reputational perspective

There is a world-check risk intelligence database which provides accurate and reliable information for substantiated decision-making. Hundreds of specialist analysts around the world gather information from trusted sources such as watchlists, government sources and trusted media. Strict research guidelines are followed.

With our possible partners we are glad to help you find an out-of-the-box, rules-driven solution for all Know Your Customer policy requirements to support regulatory needs across multiple jurisdictions and business lines.

Simplify your business partner screening process with state-of-the-art technology combined with expert knowledge. The world check data is completely structured, aggregated and deduplicated. With flexible deployment methods, you can easily integrate data into a wide variety of in-house screening platforms, cloud-based, or other third-party solutions.

Let us help you with our relevant partners determine all of the client and counterparty data and documentation that is required to support the KYC and regulatory compliance obligations. Make use of dynamic decision tree intelligence to determine the regulatory journey of the client including all the regulations, KYC questionnaires, classifications and risk assessments that need to be adhered to and performed.

Recovery Rating

Criteria, Methodologies, Notching, Processes, Read, Repairs, Systems

Credit risk is a function of an issuer’s probability of default and the loss given default on a specific debt instrument. For noninvestment grade corporate issuers, some rating agencies assign separate ratings for these two components of credit risk. An issuer rating is a rating agency’s assessment of the probability that an issuer will default on its debt. A recovery rating, on the other hand, considers the value of assets (or enterprise value) that would be available to an investor for a specific debt instrument, in accordance with its ranking and legal rights, at the time of an assumed emergence from a reorganization or liquidation process that might occur between, for example, six and 18 months after default.

Recovery ratings can be assigned to specific instruments for corporate non-investment-grade issuers, i.e., those issuers with a speculative grade issuer rating. They are assigned because non-investment-grade bonds have a greater likelihood of default, investors have a greater interest in the outcome of a potential default scenario and an assumed default scenario can be more reliably constructed.

Criteria do not typically apply ratings on public finance transactions or financial institutions, and also not to preferred share securities that are by definition low recovery instruments. Since commercial paper or short-term instruments have by definition shorter maturity durations and a higher reliance on liquidity considerations, commercial paper is also not eligible for recovery ratings.

While the underlying security affected by a recovery rating will have a rating trend unless its status is under review, recovery ratings themselves have no trends and are not placed under review. In most cases, a recovery rating will not be maintained for very long on a security that has downgraded to Default or Selective Default.

There are five stages in the determination of a recovery rating and final instrument rating: Determination of a path to default scenario, valuation of the issuer upon emergence from default, determination of claims against the defaulted entity, distribution of value from the defaulted entity and assignment of a recovery rating and notching of the issuer rating to determine a final instrument rating.

A recovery rating necessarily assumes that a default will occur; the actual probability of default is addressed solely by the issuer rating. It is important to consider the distinction between companies that have issuer ratings in the B-category or lower and companies with issuer ratings in the BB range, since lower default risk makes it more difficult to construct a scenario for both a path to default and asset or enterprise values at default.

For BB-range issuers, a rating agency might be more restrictive in terms of the degree of notching uplift it will permit between the issuer rating and the recovery rating, so as to limit the possibility of non-investment-grade issuers having instruments rated well into investment-grade territory. The final instrument rating, determined by notching up or down from the issuer rating in accordance with the recovery rating essentially blends the two elements of credit risk — probability of default and loss given default — giving investors an additional measure of the expected performance of a non-investment-grade bond.

Determining Recovery Ratings

Criteria, Methodologies, Notching, Processes, Systems

Credit risk is a function of an issuer’s probability of default and the loss given default on a specific debt instrument. For noninvestment grade corporate issuers, some rating agencies assign separate ratings for these two components of credit risk. An issuer rating is a rating agency’s assessment of the probability that an issuer will default on its debt. A recovery rating, on the other hand, considers the value of assets (or enterprise value) that would be available to an investor for a specific debt instrument, in accordance with its ranking and legal rights, at the time of an assumed emergence from a reorganization or liquidation process that might occur between, for example, six and 18 months after default.

Recovery ratings can be assigned to specific instruments for corporate non-investment-grade issuers, i.e., those issuers with a speculative grade issuer rating. They are assigned because non-investment-grade bonds have a greater likelihood of default, investors have a greater interest in the outcome of a potential default scenario and an assumed default scenario can be more reliably constructed.

Criteria do not typically apply ratings on public finance transactions or financial institutions, and also not to preferred share securities that are by definition low recovery instruments. Since commercial paper or short-term instruments have by definition shorter maturity durations and a higher reliance on liquidity considerations, commercial paper is also not eligible for recovery ratings.

While the underlying security affected by a recovery rating will have a rating trend unless its status is under review, recovery ratings themselves have no trends and are not placed under review. In most cases, a recovery rating will not be maintained for very long on a security that has downgraded to Default or Selective Default.

There are five stages in the determination of a recovery rating and final instrument rating: Determination of a path to default scenario, valuation of the issuer upon emergence from default, determination of claims against the defaulted entity, distribution of value from the defaulted entity and assignment of a recovery rating and notching of the issuer rating to determine a final instrument rating.

A recovery rating necessarily assumes that a default will occur; the actual probability of default is addressed solely by the issuer rating. It is important to consider the distinction between companies that have issuer ratings in the B-category or lower and companies with issuer ratings in the BB range, since lower default risk makes it more difficult to construct a scenario for both a path to default and asset or enterprise values at default.

For BB-range issuers, a rating agency might be more restrictive in terms of the degree of notching uplift it will permit between the issuer rating and the recovery rating, so as to limit the possibility of non-investment-grade issuers having instruments rated well into investment-grade territory. The final instrument rating, determined by notching up or down from the issuer rating in accordance with the recovery rating essentially blends the two elements of credit risk — probability of default and loss given default — giving investors an additional measure of the expected performance of a non-investment-grade bond.

Risk Profiling With Investors: Analyze Customer Profiles Appropriately and Use Them in Consulting

Books

Oliver Everling and Monika Müller (publisher): Risk profiling with investors: aptly analyze customer profiles and use them in consulting, Bank Verlag, http://www.bank-verlag-shop.de/, Cologne, 2nd, revised and expanded edition, 507 pages, Cologne 2018, ISBN 978-3-86556-506-8.

Consultants and “Robo-Advisor” must ensure that their investment recommendation reflects the risk appetite and financial viability of the client. Both economic and psychological aspects are important. An economic aspect of the risk assessment is, for example, the financial situation of the customer, which constitutes an important cornerstone of MiFID-compliant advice. These include the individual income and asset situation as well as necessary risk buffers. The psychological component deals with the customer’s risk attitude, which is based on previous personal experiences, assessments and personality traits such as risk-taking or risk perception.

The book presents in practice the latest methods and systems of risk profiling with investors and aims in particular at examining and documenting the economic and legal design possibilities of concepts as well as individual risk profiling with investors.

Oliver Everling und Monika Müller (Herausgeber): Risikoprofiling mit Anlegern: Kundenprofile treffend analysieren und in der Beratung nutzen, Bank Verlag, http://www.bank-verlag-shop.de/, Köln, 2., überarbeitete und erweiterte Auflage, 507 Seiten, Köln 2018, ISBN 978-3-86556-506-8.

Credit Analyst

Advisors, Analysts, Books, Experts

Oliver Everling, Klaus Holschuh and Jens Leker (Editor): Credit Analyst, Oldenbourg Wissenschaftsverlag, Munich, http://www.oldenbourg.de, hardcover, 1st edition 2009, 386 pages, ISBN 978-3-486-58688- 6.

The requirements of Basel II set completely new conditions for the lending business. At the same time, a variety of credit products have become increasingly important on the capital markets, from corporate bonds to securitization. The credit and capital markets are growing ever closer together.

Credit risks must be analyzed and managed – in banks as well as on the capital market. More professionalism protects market participants from the consequences of credit crises. The leading training for credit and capital market specialists in the German-speaking region of the renowned DVFA German Association for Financial Analysis and Asset Management thus continues to gain in importance.

As a professional association of investment professionals, DVFA has been implementing the proven postgraduate program CCrA – Certified Credit Analyst for many years. This encompasses both areas – the classic as well as the capital market-oriented lending business – and thus offers a comprehensive and practice-oriented qualification for specialists and executives.

The book is suitable for preparing for participation in the DVFA program, as a constant companion to the degree program, to deepen DVFA’s other education and training offerings, to complement the training of credit and capital market specialists, to refresh knowledge for practitioners and users generally to expand the financial knowledge of credit analysis skills.

Oliver Everling, Klaus Holschuh und Jens Leker (Herausgeber): Credit Analyst , Oldenbourg Wissenschaftsverlag, München, http://www.oldenbourg.de, gebundene Ausgabe, 1. Auflage 2009, 386 Seiten, ISBN 978-3-486-58688-6.

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Credit Rating by International Agencies

Books

Oliver Everling: Credit Rating by International Agencies, Dr. Th. Gabler, Wiesbaden 1991, http://www.gabler-verlag.de, bound issue, 349 pages, ISBN 3-409-14205-3.

This book is the first book in German language on the topic of credit rating by international agencies. The work was accepted for doctoral studies as an Inauguraldissertation at the University of Cologne. It is the first dissertation on rating. The book laid the foundation for hundreds of other scientific papers as well as doctoral theses and books.

Oliver Everling: Credit Rating durch internationale Agenturen , Betriebswirtschaftlicher Verlag Dr. Th. Gabler, Wiesbaden 1991, http://www.gabler-verlag.de, gebundene Ausgabe, 349 Seiten, ISBN 3-409-14205-3.

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Next Generation Financial Services: Megatrend Digitization – Strategies and Business Models

Books

Oliver Everling and Robert Lempka (editors): Next Generation Financial Services: Megatrend Digitization – Strategies and Business Models, Frankfurt am Main 2016, Frankfurt School Verlag, 436 pages, ISBN (print) 978-3-95647-043-1.

The Internet and the digital revolution are changing society and the economy on an unprecedented scale. This trend is also visible in the financial services sector: “FinTechs” are pushing retail markets forward with innovative (online) services and giving completely new impetus to traditional business areas. Until now unfulfilled customer expectations are satisfied, at the same time new customer wishes are awakened. Keywords such as social banking, mobile payment, personal finance management and crowdfunding are examples of this development. Established providers of financial services face the strategic question of which innovations are really promising for the future and which path they want to take in the future in this demanding environment.

The focus of the book on next-generation financial service providers, therefore, are the following questions:

  • What are the customer preferences in the financial services markets of tomorrow?
  • What innovative product and service offerings exist today and how do new providers position themselves?
  • How can established financial service providers successfully make their way into the digital world?
  • Which future prospects do innovative financial service providers have with their digital process and business models?

As a scientifically founded yet practice-oriented compendium, the book offers concrete benefits for decision-makers from the finance and IT sectors as well as for investors interested in the fintech market. It addresses readers from the internet industry as well as banks and other financial service providers, as well as rating agencies, venture capitalists, seed financiers, business angels, consultants, headhunters, scientists and business journalists.

Oliver Everling und Robert Lempka (Herausgeber): Finanzdienstleister der nächsten Generation: Megatrend Digitalisierung: Strategien und Geschäftsmodelle, Frankfurt am Main 2016, Frankfurt School Verlag, 436 Seiten, ISBN (print) 978-3-95647-043-1.

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Rating of Financial Institutions – Properly Assessing Banks and Financial Services Providers

Books

Zafer Diab and Oliver Everling (publisher): Ratings of Financial Institutions – Banks and Financial Services Correctly Assess, Wiesbaden 2016, Springer Gabler, Springer Fachmedien Wiesbaden, http://www.springer.com/, 217 Pages, ISBN 978-3-658- 04194-6, ISBN 978-3-658-04195-3 (eBook).

The financial crisis leaves a completely different banking landscape. In a very short time not only former big banks disintegrated, but completely different institutions formed from mergers and takeovers. Increased competition among banks is not only under the yoke of an unresolved sovereign debt crisis, but also under increased pressure from banking supervision and the next generation of financial services providers. Many business models were only possible through new information and communication technologies and await probation in practice. The legislation now covers every financial institution and places it under supervision. The book not only highlights the consequences of regulation and competition for banks’ credit rating, but also sets standards, criteria and procedures for assessing the existential risk of other financial institutions.

Zafer Diab und Oliver Everling (Herausgeber): Rating von Finanzinstituten – Banken und Finanzdienstleister richtig beurteilen, Wiesbaden 2016, Springer Gabler, Springer Fachmedien Wiesbaden, http://www.springer.com/, 217 Seiten, ISBN 978-3-658-04194-6, ISBN 978-3-658-04195-3 (eBook).

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Municipal Rating: Securing Financing for Cities and Communities

Books

Oliver Everling (publisher): Municipal rating: Securing financing of cities and communities, 2nd edition Cologne 2015, Bank-Verlag, http://www.bank-verlag.de/, 414 pages, Art. 22.489-1500, ISBN 978-3-86556-445-0.

The number of municipalities under emergency budget law raises the question of when banks could also be affected by defaults at municipal loans. Due to the minimum requirements for risk management, credit institutions are required to make risk classifications for each borrower, including municipalities and the companies they support. The political decision to weight the risk of public debtors with “zero” for the purpose of owning capital of credit institutions does not make a municipal rating superfluous, even for economic reasons.

For the first time in Germany, the first edition of the book “Kommunalrating” dealt with the topic of municipal finances from the perspective of the rating. The book sparked a lively discussion that sought less theoretical modeling than practical solutions. In the second edition, new proposals are raised, especially from the perspective of those affected, the mayors and city treasurers, but also by scientists. Many municipalities gained experience with the status of their over-indebtedness. In the case of insolvency, there is still no municipal bankruptcy law, which would allow in a foreseeable process, the exemption from the burden of debt. The lack of legal title to enforce their claims in the event of payment difficulties with their municipal debtors forces banks such also every other creditor for the differentiated risk classification of the municipal rating. The new book not only pools assessment standards for the rating of municipalities, but also highlights current developments.

Oliver Everling (Herausgeber): Kommunalrating: Finanzierung von Städten und Gemeinden sichern, 2. Auflage Köln 2015, Bank-Verlag, http://www.bank-verlag.de/, 414 Seiten, Art.-Nr. 22.489-1500, ISBN 978-3-86556-445-0.

Bank Rating – Normative Banking Regulation in the Financial Market Crisis

Books

Oliver Everling and Karl-Heinz Goedeckemeyer (publisher): Banking Rating – Normative Banking Regulation in the Financial Market Crisis, 2nd Edition, Wiesbaden 2015, Springer Gabler, http://www.springer.com, Copyright Springer Fachmedien Wiesbaden 2004, 2015, ISBN 978- 3-8349-4734-5, DOI 10.1007 / 978-3-8349-4735-2, eBook ISBN 978-3-8349-4735-2, 529 pages.

Particularly after the financial market crisis, the serious, sound assessment of the creditworthiness of banks is of particular importance. High-ranking experts from various perspectives (banking, auditing, commercial law firms, rating agencies, management consultancy) provide competent, useful assistance in this work. Since the first edition of this book, a plethora of topics has been added, particularly concerning the regulation of banks. Bank ratings are being influenced by state regulations, as hardly ever before. Thus, the focus of the contributions of this editorial work shifted to the resulting issues.

The content:

  • Assessment aspects of the business strategies of European banks
  • Methods of business assessment of banks
  • Interpretation of the bank accounting
  • Implications of ratings for the valuation of banks and bank rating systems
  • Overall bank management and credit risk management
  • Banking regulation
  • Rating and financial market communication

Oliver Everling und Karl-Heinz Goedeckemeyer (Herausgeber): Bankenrating – Normative Bankenordnung in der Finanzmarktkrise, 2. Auflage, Wiesbaden 2015, Springer Gabler, http://www.springer.com, Copyright Springer Fachmedien Wiesbaden 2004, 2015, ISBN 978-3-8349-4734-5, DOI 10.1007/978-3-8349-4735-2, eBook ISBN 978–3-8349-4735-2, 529 Seiten.

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Credit Analyst

Advisors, Analysts, Associations, Books, Certifications, Experts, Regulations

Oliver Everling, Jens Leker and Stefan Bielmeier (editors): Credit Analyst, De Gruyter Oldenburg, Walter de Gruyter GmbH, Berlin / Boston, http://www.degruyter.com/, updated and completely revised edition, 3rd edition 2015, 390 pages, ISBN 978-3-11-035379-2.

The escalation of the financial crisis has brought changes in hardly any other area as quickly as in the credit analysis. Basel’s banking regulatory requirements set new framework conditions for banks’ lending business after the financial crisis. At the same time, a variety of credit products have become increasingly important on the capital markets, from corporate bonds to securitisations. The credit and capital markets are growing ever closer together in the globalization process. Credit risks must be analyzed and managed – in banks as well as on the capital market, with both institutional and private investors. More professionalism protects market participants from the consequences of credit crises.

The postgraduate program CCrA® offers a comprehensive and practice-oriented qualification for banking and capital market credit experts.

The topics range from instruments for the analysis of individual risks to methods of active credit portfolio management. Important topics in the areas of banking regulation and credit research are also covered. In addition, the established rating agency Standard & Poor’s will give a hands-on insight into how they work in a workshop for Classic participants. Practical case studies and eSeminars complete the program. The compact program structure is designed for in-service participation and enables efficient qualification in just five months. Graduates hold the title CCrA® – Certified Credit Analyst.

Oliver Everling, Jens Leker und Stefan Bielmeier (Herausgeber): Credit Analyst, De Gruyter Oldenbourg, Walter de Gruyter GmbH, Berlin/Boston, http://www.degruyter.com/, aktualisierte und vollständig überarbeitete Ausgabe, 3. Auflage 2015, 390 Seiten, ISBN 978-3-11-035379-2.

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CleanTech Rating: CleanTech Investment and Financing – Companies and Projects

Books

Oliver Everling (Editor): Cleantech Rating: Investment and Financing of Cleantech – Companies and Projects, Kindle Edition (Amazon Media EU S.à rl), RATING EVIDENCE GmbH, 1st Edition Frankfurt am Main 2015, 268 pages, ASIN: B00QFNHAQ8.

“Cleantech” is not a new buzzword, but names the consistent continuation of a fundamental trend. Clean technologies encompass all products and services that have a positive and sustainable impact on the environment, climate change and humans. Sustainable, efficient and environmentally friendly use of our planet’s scarce resources so that humankind can continue to survive in the long term and sustainably will remain a challenge for science and practice in the long term. This includes both vertical applications and horizontal base technologies.

We do not want to anticipate the definitions of our authors. For example, “cleantech” in this book covers a variety of sectors and subsegments. The rating, ranking or scoring of companies in the field of “cleantech” and the opportunities offered to them is therefore based on the idea of ​​bringing transparency to many investors in an opaque market. The book offers a forum for discussing the nature and design of rating sentences. “Rating” is understood as a generic term for any type of classification for the purpose of preparing investment and financing decisions.

By placing the title on the view of investors or decision makers, the reader should be offered a publication that, although scientifically sound, is rather positioned as a practice-oriented compendium with concrete benefits for those affected. Thus, there is a broad target group for this book: investors in cleantech companies, cleantech entrepreneurs, asset managers, foundations, (eg church) pension funds, financial advisors, investment brokers, banks, insurance companies and other financial service providers, consultants, scientists, business journalists and last but not least – private investors from the entire German-speaking area.

Authors of the book: Jan G. Andreas, Dr. Michael Brandkamp, ​​dr. Matthias Gündel, Thomas Hellener, Christoph Herr, Prof. Dr. Johannes Hoffmann, Wilhelm Kötting, Daniela Kramer, Dr. Ing. Bernd Kreuter, Ingmar Kruse, Dieter Pape, Dr. Ralf-Rainer Piesold, Michael Wilkins, Axel Wilhelm, Stefanie Zillikens.

Oliver Everling (Herausgeber): Cleantech Rating: Investition und Finanzierung von Cleantech – Unternehmen und ProjekteKindle Edition (Amazon Media EU S.à r.l.), RATING EVIDENCE GmbH, 1. Auflage Frankfurt am Main 2015, 268 Seiten, ASIN: B00QFNHAQ8.

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Rating of Asset Management

Books

Oliver Everling and Jürgen Lampe (Publisher): Rating of asset management, Frankfurt School Verlag GmbH, 1st edition Frankfurt am Main 2014, 392 pages, ISBN 978-3-95647-003-5.

For the first time, this book provides an overview of practice-related assessment approaches for asset management. With respect to new information and communication technologies, it explains the impact of ratings, rankings and scoring on workflows, service processes and asset management efficiency. In addition, it discusses how communication between financial service providers and customers will change as a result of transparent assessment criteria. In this way, this work addresses the (customer) need for transparency of consulting services in the financial sector.

Oliver Everling und Jürgen Lampe (Herausgeber): Rating von Vermögensverwaltungen (Edition Frankfurt School), 1. Auflage Frankfurt am Main 2014, 392 Seiten, ISBN 978-3-95647-003-5.

Basel III: Impact of the New Banking Supervision Law on SMEs

Books

Oliver Everling and Rainer Langen (publisher): Basel III: Effects of the New Banking Supervision Law on the Mittelstand, Bank-Verlag GmbH, 1st Edition Cologne 2013, 199 pages, Art. 22486-1300, ISBN 978-3-86556-354-5.

The book is aimed in particular at the corporate clients of banks who, as with Basel II, are now asking about the consequences of Basel III for optimizing their financing.

The book follows the concept of a collage of papers, statements, and numerous advice – loosened up by interviews – and shows various different perspectives and concrete practical solutions for future SME financing, which should lead to a successful cooperation of entrepreneurs and investors.

The content is structured as follows:

  • General: Regulatory changes – from Basel II to Basel III
  • Bank overview: How is lending policy changing in competition?
  • Entrepreneurship: Consequences in SME financing
  • Solutions at the interface of corporate account managers and entrepreneurs
  • Tips for entrepreneurs (financing, bank discussion, rating process)
  • Special topics (real estate, Austria)

Oliver Everling und Rainer Langen (Herausgeber): Basel III: Auswirkungen des neuen Bankenaufsichtsrechts auf den MittelstandBank-Verlag GmbH, 1. Auflage Köln 2013, 199 Seiten, Art.-Nr. 22.486-1300, ISBN 978-3-86556-354-5.