European Union Transparency Report March 2018

European Union Transparency Report March 2018

European Union Transparency Report March 2018

European Union Transparency Report March 2018 1 European Union Transparency Report This Transparency Report is published in accordance with Article 12 and Annex I, Section E.III of the EU Regulation on Credit Rating Agencies ((EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies, as amended by Regulation (EU) No 513/2011 of the European Parliament and of the Council of 11 May 2011 and as amended by Regulation (EU) No. 462/2013 of the European Parliament and of the Council of 21 May, 2013 (hereinafter referred to as the EU Regulation)).

It provides information on the operations of Fitch Ratings in the EU for the fiscal year ending December 2017.

European Union Transparency Report March 2018 2 Table of Contents 1. Legal Structure and Ownership . . 3 2. Internal Control Mechanisms Ensuring the Quality of Credit Rating Activities . . 5 3. Information on Allocation of Staff . . 12 4. Record Keeping Policy . . 16 5. Outcome of the Annual Internal Review of the Compliance Function . . 17 6. Management and Rating Analyst Rotation Policy . . 18 7. Information on Revenue . . 23 8. Governance Statement . . 24

European Union Transparency Report March 2018 3 1. Legal Structure and Ownership Legal Structure The Fitch Ratings group of companies established in the EU are listed below.

Each of these companies is incorporated in accordance with applicable national law and registered under the EU Regulation. 1. Fitch Ratings Ltd - established in England 2. Fitch Ratings CIS Ltd - established in England 3. Fitch France S.A.S. - established in France 4. Fitch Deutschland GmbH - established in Germany 5. Fitch Italia S.P.A. - established in Italy 6. Fitch Polska S.A. - established in Poland 7. Fitch Ratings España S.A.U. - established in Spain Fitch Ratings Ltd operates largely in the United Kingdom, although it has a branch in Dubai. The Swedish branch of Fitch Ratings Ltd was de-registered on 11 December 2017.

A Swedish branch of Fitch Ratings Espana S.A.U. was registered on 22 August 2017.

Ownership The only entity to hold a material stake in any of Fitch Ratings CIS Ltd, Fitch France S.A.S., Fitch Deutschland GmbH, Fitch Italia S.P.A., Fitch Polska S.A. and Fitch Ratings España S.A. is Fitch Ratings Ltd. In turn, the only entity to hold a material stake in Fitch Ratings Ltd is Fitch Ratings, Inc., Fitch’s American rating agency. a) Fitch Ratings Ltd: ownership – Fitch Ratings, Inc. 100% b) Fitch Ratings CIS Ltd: ownership – Fitch Ratings Ltd 100% c) Fitch France S.A.S.: ownership – Fitch Ratings Ltd 100% d) Fitch Deutschland GmbH: ownership – Fitch Ratings Ltd 100% e) Fitch Italia S.P.A.: ownership – Fitch Ratings Ltd 97%, Fitch Ratings, Inc.

3% f) Fitch Polska S.A.: ownership – Fitch Ratings Ltd 100% g) Fitch Ratings España S.A.U.: ownership – Fitch Ratings Ltd 100% Fitch Ratings Ltd is 100% owned by Fitch Ratings, Inc. Fitch Ratings, Inc., in turn is 100% owned by Fitch Group, Inc., a holding company, which in turn is 20% owned by Fimalac S.A. of France and 80% indirectly owned by the Hearst Corporation of the US.

The Hearst Corporation is a privately held diversified media and information company with headquarters in the US. Its major interests include ownership of magazines, newspapers, cable networks, television broadcasting, internet and marketing services businesses, TV production, newspaper features distribution, and real estate. It maintains significant holdings in automotive and medical/pharmaceutical business information companies. It retains its ownership interest in the Fitch Group, Inc. through Hearst Ratings II, Inc., a single purpose subsidiary.

European Union Transparency Report March 2018 4 Fimalac S.A.

is a holding company listed in Paris. It operates in the financial services sector through Fitch Group, Inc. the parent company of Fitch Ratings, Inc. It is also present in four other business areas. Namely i) a digital division including, cinema and TV series, gaming, recipes and travel, ii) entertainment including management of artists and theatres, iii) casinos and luxury hotels (40%), and iv) real estate sector, mainly through North Colonnade Ltd. Fimalac maintains a twenty percent (20%) ownership interest in the Fitch Group, Inc.

European Union Transparency Report March 2018 5 2. Internal Control Mechanisms Ensuring the Quality of Credit Rating Activities 1. Introduction This document describes the internal controls related to the issuance of Credit Ratings employed by Fitch Ratings, Inc. (“FRI”) and Fitch Ratings Limited (“FRL”), including any of FRI’s and FRL’s subsidiaries that issue credit ratings under the trade name of Fitch Ratings (collectively, “Fitch Ratings”). The definition of Credit Ratings, along with both other capitalised terms that may be used in this document and other material information pertaining to Credit Ratings, are set forth on Fitch Rating’s publicly available website at https://www.fitchratings.com/site/definitions.

2. Board Oversight The Board of Directors of FRI (the “FRI Board”) and FRL (the “FRL Board” collectively, the “Boards”), which are the most senior credit rating agencies within Fitch Group, Inc. (“Fitch Group”), operate in accordance with a governance charter and related board procedures to implement the charter. Each of the Boards performs its oversight activities on behalf of Fitch Ratings globally. In addition, where necessary pursuant to applicable local law requirements, the local boards of directors of other Fitch credit rating subsidiaries may perform additional oversight activities.

Among other matters, the Boards are responsible for the oversight and management of FRI or FRL, as the case may be, in accordance with their fiduciary responsibilities and standards established by the laws of the jurisdictions in which FRI and FRL were organised. The Boards have delegated responsibility for the day-to-day running of FRI and FRL to a senior management team with sufficient skill and experience to ensure the sound and prudent management of FRI and FRL. The Boards oversee, among other matters: 1. The process for the issuance of Credit Ratings; 2. The publishing of new and materially amended criteria and methodologies pertaining to determining Credit Ratings; 3.

The implementation of certain new and materially amended policies; 4. The program designed to manage conflicts of interest; 5. The maintenance of internal controls related to determining credit ratings; and 6. The compensation and promotion processes.

3. Policy Framework All Fitch policies and procedures are consistent with (i) Fitch’s Code of Conduct & Ethics, which is based upon the global best practices outlined in the IOSCO Code of Conduct Fundamentals for Credit Rating Agencies, and (ii) with respect to any jurisdiction in which Fitch conducts Credit Rating activities, all laws, rules and regulations applicable to credit rating agencies in such jurisdiction. During the policy development or amendment stage, input is gathered from relevant constituents within Fitch including, where appropriate, the senior management of the Global Analytical Groups, the Credit Policy Group (“CPG”), the Legal

European Union Transparency Report March 2018 6 Group, Ratings Operations the Business and Relationship Management Group (“BRM”), the Compliance Department (“Compliance”), and any others as may be appropriate. Once a new or amended policy is finalised, it is subject to review and approval in accordance with Fitch Ratings internal protocols. Certain of Fitch’s policies are also subject to review by the Boards. 4. Three Lines of Defense Fitch’s internal control structure is designed to ensure that Fitch employees comply with Fitch’s policies and procedures relating to or associated with the issuance of Credit Ratings.

This control structure consists of three lines of defense, and is ultimately overseen by the Boards: a) First Line of Defense : The Global Analytical Groups, BRM and Ratings Operations (see below in 5); b) Second Line of Defense: CPG and the Compliance Department (see below in 6); and c) Third Line of Defense: Internal Audit (see below in 7) and external or outsourced third-party audits, as needed. Each of the three lines of defense are further supported by the Information Technology group (IT) (see below in 8) 5. First Line of Defense The overall responsibility to ensure that Fitch’s policies and procedures relating to or associated with the issuance of Credit Ratings are followed, rests with the senior managers of the first line of defense.

Global Analytical Group / Rating Operations The “Senior Managers” of the Global Analytical Group, (i) are the Senior Global Group Heads (ii) the Global Group Heads, each covering the analytical groups and (iii) the Regional Group Heads covering certain geographical areas. The senior managers in the Global Analytical Group are supported in their efforts by Ratings Operations. Business Relationship Management Fitch maintains a separate BRM Group, which carries out ratings-related commercial and marketing activities independently of the Global Analytical Groups, to ensure that analytical staff are not influenced by business considerations.

All discussions with an issuer, originator, arranger, sponsor, servicer or any other party that interacts with Fitch on behalf of the issuer concerning rating fees, fee arrangements or billings are handled by BRM, finance and accounting staff, members of the Legal Department or others outside an Analytical Group employed by Fitch to handle billing or fee collection matters. BRM staff also follow policies and procedures designed to ensure compliance with international sanctions and anti-bribery laws, as well as other aspects of credit rating agency regulation. BRM is also in part supported in their efforts by Ratings Operations.

Ratings Operations Ratings Operations is responsible for developing and implementing procedures and controls with respect to the Credit Rating process in response to regulation, Fitch Ratings Policy, and senior management guidance. Rating Operation works with members of the Global Analytical Groups, Compliance, CPG, Human Resources, Legal and IT to identify risks and implement procedural and technical solutions in support of Fitch Ratings control framework and analyst’s

European Union Transparency Report March 2018 7 compliance with the firm’s policies and procedures.

Ratings Operations also procedures management reports to support the Global Analytical Groups compliance with the various procedures outlined in the Ratings Process Manual. In addition, Ratings Operations is responsible for defining and implementing a globally consistent approach to: • Analytical policy and procedure development • Training related to rating policies and procedures and internal controls over the rating process • To the extent related to the ratings process, applications and system development and training, and • Document and records management pertaining to the rating process 6.

Second Line of Defense Fitch’s core control functions of CPG, the Criteria Review and Approval Group (CRAG) and Compliance comprise the Second Line of Defense. These functions operate at a global, rather than local level, with staff based primarily in Fitch’s New York and London offices providing support and oversight to all Fitch Ratings offices globally. a. The Credit Policy Group CPG is independent of the Global Analytical Groups and includes the Chief Credit Officer, Group Credit Officers, Regional Credit Officers, and various research teams, such as a Credit Market Research team. The Chief Credit Officer reports to the Chief Risk Officer of Fitch Group (“CRO”).

The Chief Credit Officer and Group and Regional Credit Officers also leverage participation in various committees and discussions to ensure new or developing issues are shared and addressed across Analytical Groups. CPG therefore serves as an oversight function with respect to Fitch’s analytical work.

In fulfilling these responsibilities, CPG conducts the following activities, among others: • Aggregates risks across ratings by focusing on risk identification and coordination across sectors and regions; • Conducts reviews for assessing ratings performance and ratings comparability; • Uses developing trends in issuance volumes, product innovations or structural change to appropriately and constructively raise awareness of potential disconnects from current approaches; • Links rating trends with current fundamentals, macro-economic developments and analytically defined expectations by industry or sector; • Monitors that Analytical Groups are addressing new developments with an appropriate sense of urgency and rigor and reports on and makes recommendations in certain cases; • Develops and nominates areas of topical research that can be used to frame priorities or identify the next potential credit market development;

European Union Transparency Report March 2018 8 • Ensures sensitivity analysis and/or forecasts are utilized in each Analytical Group where appropriate to help ensure that ratings are forward-looking; Reviews complaints alleging Fitch Rating’s failure to properly perform analytical activities; and • Reviews and implements policies and procedures around exceptions to standard processes. b. Criteria Review and Aproval Group CRAG is independent of the Global Analytical Groups and includes the Chief Criteria Officer, Head of Model Validation, Manager of Ratings Performance Analytics and Criteria Officers.

The Chief Criteria Officer reports to the CRO. CRAG serves as an oversight function with respect to Fitch Ratings’ ratings criteria and related models. In fulfilling these responsibilities, CRAG conducts the following activities, among others: • Oversees the rating criteria (and related models and key assumptions) review and approval process (Analytical Groups are responsible for proposing suitable criteria that support ratings); • Conducts regular transition and default studies to monitor the performance of Fitch’s ratings over time and across analytical sectors and geographical regions; • Utilizes a database of criteria and models to measure compliance with the requirements to review such criteria and models; • Reviews criteria back-testing and model validation; and • Maintains a log of analytical errors.

In addition to their oversight activities, CPG and CRAG contribute to the development of a training program, the Fitch Credit Academy, to provide a formal structure to develop and assess the knowledge and skills analysts need to be effective in evaluating credit. The program consists of two levels: In the first level of the program, analysts are introduced to fundamental credit concepts; whereas in the second level analysts complete ten specialized curricula that are designed to develop the relevant knowledge and skills appropriate for each Global Analytical Group, sector and region, as applicable.

c. The Compliance Department Compliance is responsible for advising on, supporting and overseeing compliance with the various laws, rules and regulations governing the issuance of Credit Ratings (“CRA Regulation”) promulgated in the jurisdictions in which Fitch Ratings operates, along with those requirements set forth in Fitch’s Code of Conduct & Ethics and related policies relating to conflicts of interest and confidentiality (collectively, “Conduct Policies”). Compliance supports Fitch Ratings compliance with CRA Regulation and the Conduct Policies on an on-going basis through the functions described below, as well as by analysing information via Fitch Ratings Ethics Hotline and internal incident reporting systems.

Compliance is headed by the Global Chief Compliance Officer (the “CCO”), who reports jointly into the Chief Risk Officers of Fitch Group, and the Independent Directors of the Board of FRI (“the Independent Directors”). In addition to its New York and London based staff, Compliance is staffed by Local Compliance Officers, based in Fitch Ratings Chicago office, as well as in its offices in Brazil, Chile, Colombia, Hong Kong, Germany 1 , Japan, Mexico, Russia and 1 Compliance Senior Director started in January 2018

European Union Transparency Report March 2018 9 Singapore. The CCO periodically reports to the Independent Directors and the CRO on the goals, strategy and status of the Compliance Department, the compliance program, and certain other Compliance processes and controls including those undertaken by the Department’s four core teams. Compliance monitors and assesses Fitch’s compliance with policies and procedures on an on-going basis through the functions described below, as well as by analysing information obtained via Fitch’s Violations Reporting line. As necessary, Compliance follows up with the appropriate managers to address any issues identified.

The Chief Compliance Officer also has responsibility for ensuring that appropriate reviews are conducted in response to possible breaches of Fitch’s policies and procedures. Lastly, Compliance maintains a database of CRA regulations, which uses when carrying out its activities.

The Compliance Department is primarily comprised of four core teams as follows: 1 Regulatory Compliance: Regulatory Compliance is responsible for maintaining (either directly or in conjunction with local country management) Fitch Ratings’ license or registration in all jurisdictions where Fitch Ratings is licensed or registered as a credit rating agency. This includes making periodic (monthly, annual, etc.) reporting and filings and any additional “as needed” reporting, along with making any necessary public or regulatory disclosures of issues or events. In addition, this team manages all regulatory exams and other regulatory requests for documents and information.

Further, the team helps coordinate Fitch Ratings’ responses to all exam findings and recommendations, and tracks and monitors Fitch Ratings’ completion of agreed management actions. The team regularly liaises with regulators on a global basis through in-person visits or conference calls. Moreover, Regulatory Compliance is responsible for oversight of the processes regarding the handling and resolution of Conduct-related complaints, and for undertaking certain Conduct- related internal investigations. Finally, Regulatory Compliance conducts outreach to Fitch Ratings’ offices in Latin America, Asia, Europe, and the Middle East through either on-site visits or teleconferences.

Regulatory Compliance is managed by a Global Head of Regulatory Compliance who reports to the CCO, and is supported by Regional Heads of Regulatory Compliance for EMEA, APAC, Latin America and North America. 2 Personal Conflicts Monitoring: The Personal Conflicts Monitoring team (“PCM”) administers Fitch Ratings’ Global Securities Trading and Conflicts of Interest Policy (“Bulletin 13”). Bulletin 13 establishes policies intended to minimise actual and apparent conflicts that may arise from employees’ personal trading activity, outside interests and external relationships, and gifts, business events and entertainment.

PCM utilizes a third party trade surveillance platform to monitor Fitch Ratings employees’ trading activity. PCM also administers the initial securities holdings certification and compliance questionnaire for new hires, as well as an annual compliance recertification of securities holdings and compliance questions for existing staff. Further, PCM is responsible for administering the exceptions and recusals that arise as a result of a potential conflict related to Bulletin 13.

3 Compliance Testing and Monitoring: The Compliance Testing & Monitoring team (“CTM”) conducts testing throughout Fitch Ratings to assess compliance with CRA Regulations, Fitch Ratings’ policies and procedures, and the effectiveness of internal controls implemented with respect to its Credit Rating and related activities. CTM develops annually a risk-based compliance test plan, which is derived from, among other factors, outcomes of compliance risk assessments, previous CTM findings and risks identified through regulatory findings or other issues, incidents or trends. CTM conducts its testing throughout the year and presents its reports, including corrective action plans for issues identified, to senior management.

CTM also monitors the aging of previously identified issues, and escalates overdue issues as appropriate. Further, CTM is responsible

European Union Transparency Report March 2018 10 for performing surveillance of Analytical Group and BRM employees’ email communications. In particular, CTM flags emails that could represent breaches or violations of Fitch Ratings’ policies or procedures for review and follow-up, and where appropriate triggers disciplinary or remedial action. 4 Compliance Policies & Regulatory Change: The Compliance Policies & Regulatory Change team (“Compliance Policy”) is responsible for administering Fitch Ratings’ policy and procedure framework globally. It also takes the lead in updating and revising the Conduct Policies and other Compliance-owned policies or procedures, in consultation with key stakeholders.

Further, Compliance Policy tracks pending changes to CRA Regulation. In that capacity, it will work with impacted stakeholders to communicate the change, and to help coordinate and track implementation of any resulting actions. Moreover, this team is responsible for developing and delivering (or coordinating development and delivery of) relevant Compliance training content either in- person, or through web-based training modules.

7. Internal Audit (Third Line of Defense) Internal Audit (“IA”) assists senior management and the Boards in protecting the assets and reputation of Fitch Ratings Group. In particular, IA provides independent and objective assurance as to the adequacy and effectiveness of Fitch Ratings’ risk framework, controls and governance processes. The Head of IA reports to the Independent Directors and the CRO. At least annually, the Head of IA submits to the Independent Directors and the CRO an internal audit plan for review and approval. The internal audit plan consists of a work schedule for the following fiscal year.

It is developed based on a prioritisation of the audit universe using a risk-based methodology, including input from the Independent Directors, the CRO and other members of Fitch Ratings’ senior management. The Head of IA reviews and adjusts the plan, as necessary, in response to changes in Fitch Ratings’ business, risks, operations, programs, systems and controls. Any significant deviation from the approved internal audit plan is communicated to the Independent Directors and the CRO through periodic reporting or direct communication, as applicable. After the conclusion of an internal audit engagement, the Head of IA (or his or her designee) issues and distributes a written report.

The audit report may include management’s response and corrective action with regard to the specific findings and recommendations. Management’s response includes a timetable for anticipated completion of corrective actions. IA is also responsible for appropriate follow-up, and all significant findings remain in an “open issues file” until cleared. The Head of IA periodically reports to the Independent Directors and the CRO on the purpose, authority and responsibility of IA as well as progress and performance regarding the audit plan. Included in the reporting are significant risk exposures and control issues, including risks around governance, fraud or other matters as requested by the Independent Directors and the CRO.

8. Global IT Structure and Systems Fitch IT manages the technology infrastructure for Fitch Ratings globally. In addition to typical IT tasks and responsibilities, at Fitch IT also: • Manages access control for file folders, and applications in compliance with confidentiality and conflict of interest policies; • Manages data security (e.g., computer and network security, including periodic reviews of employee access entitlements) in compliance with confidentiality policies;

European Union Transparency Report March 2018 11 • Maintains and monitors infrastructure including desktops, networks and data centers required for ongoing operations; • Manages and tests disaster recovery plans; and • Develops and maintains custom applications required to support core ratings activities, such as workflow systems, analysis and surveillance systems, and publishing and document management systems.

European Union Transparency Report March 2018 12 3. Information on Allocation of Staff The tables below detail the total number of employees for each EU entity, as at the end of the fiscal year ending December 31, 2017, identifying: a) The number of analytical staff employed within the ratings groups who work on new credit ratings and credit rating reviews (including supervisors). b) The total number of analytical staff employed within the Credit Policy Group and therefore responsible for methodology or model appraisal.

c) The total number of analytical supervisors within both the ratings groups and the Credit Policy Group.

d) The total number of global group heads – the senior-most managers of each analytical group, including the Global Analytical Head that these individuals report into. e) The total number of support staff. Fitch France S.A.S Analytical staff employed within rating groups 31 Analytical staff employed within CPG 0 Total Analytical Staff 31 Of which Corporates 3 Of which Financial Institutions 8 Of which Structured Finance 11 Of which Sovereign and International Public Finance 8 Of which analytical supervisors (i.e. Senior Director or above) 11 Of which global group heads 0 Total Support Staff 13 Total Staff 44 Fitch Deutschland Gmbh Analytical staff employed within rating groups 30 Analytical staff employed within CPG 3 Total Analytical Staff 33 Of which Corporates 3 Of which Financial Institutions 7 Of which Structured Finance 18 Of which Sovereign and International Public Finance 2 Of which analytical supervisors (i.e.

Senior Director or above) 8 Of which global group heads 0 Total Support Staff 10 Total Staff 43

European Union Transparency Report March 2018 13 Fitch Italia S.p.A Analytical staff employed within rating groups 30 Analytical staff employed within CPG 1 Total Analytical Staff 31 Of which Corporates 5 Of which Financial Institutions 4 Of which Structured Finance 13 Of which Sovereign and International Public Finance 5 Of which analytical supervisors (i.e. Senior Director or above) 10 Of which global group heads 0 Total Support Staff 12 Total Staff 43 Fitch Polska S.A. Analytical staff employed within rating groups 14 Analytical staff employed within CPG 0 Total Analytical Staff 14 Of which Corporates 4 Of which Financial Institutions 5 Of which Structured Finance 0 Of which Sovereign and International Public Finance 5 Of which analytical supervisors (i.e.

Senior Director or above) 2 Of which global group heads 0 Total Support Staff 6 Total Staff 20 Fitch Ratings Espana S.A.U. Analytical staff employed within rating groups 24 Analytical staff employed within CPG 1 Total Analytical Staff 25 Of which Corporates 6 Of which Financial Institutions 3 Of which Structured Finance 8 Of which Sovereign and International Public Finance 6 Of which analytical supervisors (i.e. Senior Director or above) 7 Of which global group heads 0 Total Support Staff 15 Total Staff 40

European Union Transparency Report March 2018 14 Fitch Ratings CIS Ltd Analytical staff employed within rating groups 33 Analytical staff employed within CPG 0 Total Analytical Staff 33 Of which Corporates 12 Of which Financial Institutions 15 Of which Structured Finance 0 Of which Sovereign and International Public Finance 6 Of which analytical supervisors (i.e. Senior Director or above) 6 Of which global group heads 0 Total Support Staff 20 Total Staff 53 Fitch Ratings Ltd (Inc. branches) Analytical staff employed within rating groups 257 Analytical staff employed within CPG 35 Total Analytical Staff 292 Of which Corporates 70 Of which Financial Institutions 68 Of which Structured Finance 82 Of which Sovereign and International Public Finance 23 Of which analytical supervisors (i.e.

Senior Director or above) 72 Of which global group heads 2 Total Support Staff 230 Total Staff 522 Further information on senior management can be found in section 6 of this report. Notes to the Tables: 1. Analytical supervisors are defined as those analytical employees holding a title of Senior Director or above. Quorum requirements for ratings committees require at least one analyst with a title of Senior Director or above to be present.

2. Fitch does not maintain separate surveillance teams with respect to its corporate or public finance groups in Europe. Thus, the analytical staff in these areas work on both assigning new ratings and monitoring existing ones. In addition, while Fitch has historically maintained a separate structured finance surveillance group within Europe, which is based in London, simple segmentation between surveillance and new transactions analysts would be misleading as Fitch is increasingly running some groups on a fungible basis. As such, it is not appropriate to classify our structured finance analysts purely as “new deal” or “surveillance” analysts.

European Union Transparency Report March 2018 15 3. New methodologies or models, and amendments to existing methodologies or models that would have a material impact on a given set of ratings are required under Fitch policy to be reviewed by a Criteria Review Committee. While senior analysts from across the analytical groups participate in this process, only staff drawn from the Criteria Review Approval Group are permitted to vote on the final outcome. 4. Fitch has five global rating group heads worldwide that report to one global analytical head. Each of these individuals has global responsibility for one or more rating product areas as follows: 1) corporate finance; 2) global infrastructure, United States public finance and international public finance; 3) banks, non-bank FI’s, insurance and fund and asset management; 4) sovereigns; and 5) structured finance and covered bonds.

European Union Transparency Report March 2018 16 4. Record Keeping Policy Fitch has in place global file maintenance and record-keeping policies and practices that are designed, collectively, to ensure that it maintains adequate records in accordance with all applicable laws and regulations including, but not limited to, the EU Regulation. The two main policies that are applicable to Fitch’s rating-related records – the File Maintenance and Recordkeeping Policy for Analysts, and the File Maintenance and Recordkeeping Policy for the Business and Relationship Management Group.

Additional details regarding the exact content of the information that must be included in certain documents referenced in the File Maintenance and Recordkeeping Policy for Analysts – such as rating committee minutes – are contained in internal manuals that provide detailed procedural guidance on the rating process.

Other non-analytical groups, such as the Accounts Group, maintain separate internal recordkeeping policies. Collectively, these policies and procedures require that, among other things, Fitch maintains records for a period of at least five years that cover: (a) documents including internal records and working papers used or created in support of determining and assigning any type of credit rating, assessment, opinion, score or other Fitch credit product; (b) electronic or written communications received or sent by Fitch and its employees concerning fee negotiations; (c) records of the solicited and unsolicited status of each credit rating; (d) records documenting the established procedures and methodologies used by Fitch to determine credit ratings; (e) records of the procedures and measures implemented by Fitch to comply with any applicable regulation; and (f) external and internal communications, including emails received and sent by Fitch and its employees that relates to initiating determining, maintaining, monitoring, changing or withdrawing a credit rating.

European Union Transparency Report March 2018 17 5. Outcome of the Annual Internal Review of the Compliance Function As part of its 2017 work plan, Internal Audit delivered its annual audit of the Global Compliance Group. The scope of the audit covered Regulatory Compliance’s (‘RC’) role in regulatory filings in respect of those Fitch Ratings subsidiaries listed on Fitch Ratings Inc.’s Form NRSRO as filed with the US Securities & Exchange Commission (“NRSRO Affiliates”) and Personal Conflict Monitoring’s (‘PCM’) oversight over adherence to Bulletin 13: Global Securities Trading and Conflict of Interest Policy specifically related to securities trading.

Both elements of the audit focussed on a sample period in 2016.

The audit identified two ‘Minor’ rated issues and the overall outcome of the audit was satisfactory. As part of its 2018 work plan, Internal Audit delivered its annual audit of the Global Compliance Group. The scope of the audit covered the Email Surveillance programme conducted by Fitch’s Compliance Group Testing and Monitoring team during a sample period in 2017. The audit identified one Moderate and one Minor rated Issue and the overall outcome of the audit was satisfactory.

European Union Transparency Report March 2018 18 6. Management and Rating Analyst Rotation Policy Management Fitch maintains separate legal entities in the UK, France, Germany, Italy, Spain and Poland largely for fiscal reasons.

In maintaining separate legal entities, Fitch complies with all local corporate law requirements as well as the applicable corporate governance requirements of the EU Regulation. Thus, each of Fitch Ratings Ltd, Fitch Ratings CIS Ltd, Fitch France S.A.S., Fitch Deutschland GmbH, Fitch Italia S.P.A., Fitch Polska S.A. and Fitch Ratings España S.A.U. is set up in a manner consistent with the applicable local corporate law. The individual board members of each of our EU companies are identified within the tables provided as part of Section 8 of this report. Separate from the board members, each of Fitch’s smaller EU credit rating agencies - Fitch Ratings CIS Ltd, Fitch France S.A.S., Fitch Deutschland GmbH, Fitch Italia S.P.A., Fitch Polska S.A.

and Fitch Ratings España S.A.U. – has an office head who has day-to-day responsibility for the smooth functioning of the office. These office heads are members of the global Business and Relationship Management Group and, as such, have no analytical responsibilities. They report to the Head of Global Head of Revenue Management, who is based in London. The organisation of Fitch’s analytical management is not structured around our corporate organisation. Each of the analytical staff employed within Fitch’s EU subsidiaries reports to a regional group head, in some cases through a series of line managers.

The regional rating group heads report ultimately to a global group head. Currently three of Fitch’s five global rating group heads are based in London, and two are based in the United States of America. All five analytical global group heads report to a Global Analytical Head who was initially based in Tokyo and later in New York for the period covered by this report. This individual reports to the President of Fitch Ratings, Ian Linnell, who is based in London.

Fitch’s core support functions – including the Global Compliance Group and the Credit Policy Group – are structured in a similar way, with local staff operating regionally and reporting to a Regional Group Head, who in turn reports to a Global Head. Analyst Rotation The analyst Rotation Policy in effect with respect to Fitch’s EU operations was developed to be consistent with the EU Regulation. It establishes, with respect to any EU credit rating agency with 50 or more staff, maximum permissible time periods for covering a rated entity.

As provided for within the EU Regulation, Fitch maintains an exemption from applying these requirements in full for Fitch France S.A.S., Fitch Deutschland GmbH, Fitch Polska S.A., Fitch Ratings España S.A.U.

and Fitch Italia S.P.A. for practical reasons such as language considerations 2 . 2 Fitch Deutschland GmbH ceased to be eligible for an exemption from February 2018

European Union Transparency Report March 2018 19 Extracts from the current version of Fitch’s analyst Rotation Policy that are applicable to Fitch’s EU operations are reproduced in full below. Rotation Policy Effective Date: May 18 2017 Version: 13.0 Responsibility: Credit Policy Group 1.0 Overview Fitch Ratings (“Fitch”) has established policies governing Analyst rotation designed to meet local regulatory requirements. This Bulletin sets forth those policies, replacing Version 12 of Bulletin 34: Rotation Policy (dated December 15, 2015). This revised version makes the following key changes, in addition to other clarifications throughout the document: (i) Analytical management meetings are no longer subject to rotation requirements and, consequently, do not need to be tracked for purposes of this policy; (ii) In the EU, the date on which the period of service by primary/secondary analysts commences (the Analytical Start Date), is the date a public Credit Rating is issued; and (iii) In Mexico, the rotation requirements apply (a) to both National Scale Credit Ratings and to National Scale Non- Credit Ratings (but not to international scale ratings); and (b) for all Rated Entities domiciled in Mexico, regardless of the location of the Analyst.

Depending on the relevant country and type of rating, this policy applies to primary analysts, secondary analysts, committee chairs and/or voting members of committees in the European Union (“EU”), Japan and Mexico. This policy does not apply to rating products other than Credit Ratings except, as noted, in respect of Mexico. 2.0 Definitions Analysts are those individuals whose function involves performance of Credit Rating Activities or, for Mexico, determination and issuance of Non-Credit Rating products, and can include primary analysts, secondary analysts, committee chairs and persons who vote in committees.

Analytical Start Date is the date on which rating activities are deemed to commence, as follows: • For primary and secondary Analysts, the Analytical Start Date is as follows: - In the EU rotation starts (i) for newly assigned Credit Ratings, on the date the final rating is first issued and (ii) for existing Credit Ratings, the date on which analytical coverage changes as recorded in the relevant work system; In Mexico, the date a rating is issued and - - In Japan, the date the Analyst is initially assigned to cover a Rated Entity, as recorded in the relevant work system.

• For committee chairs and voting members of committees, the Analytical Start Date is the date on which (i) for newly assigned Credit Ratings, the final rating is first issued by the committee chaired or attended by the Analyst and (ii) for existing Credit Ratings the committee chair or analytical attendance changes.

The date of issuance of any indicative or preliminary rating is not relevant for determining Analytical Start Date.

European Union Transparency Report March 2018 20 Consecutively Participating Analyst is a term used exclusively for purposes of the Japanese rotation requirements. It pertains to Credit Ratings of insurance companies assigned or endorsed by FRJ. It is defined as a voting member who voted in all rating committees held during the prior financial year with respect to a particular Rated Entity, where the committee assigned new ratings, affirmed ratings, reviewed ratings (e.g., either affirmed, reviewed – no action, downgraded, upgraded) or withdrew ratings 3 . An Analyst who did not vote in all committees held with respect to the Rated Entity during the prior financial year is not considered a Consecutively Participating Analyst.

Credit Rating means a notch-specific view, using a published rating scale, fully considering all of the relevant information available to Fitch from public and non-public sources, including an appropriate review of legal and/or structural documentation. Ratings are typically monitored but may be point-in-time on a private basis. Monitored ratings may be either public or private with the categorization determined by public disclosure. Credit Rating Activities includes data and information analysis and the evaluation, approval, and issuance and review of credit ratings, including acting as the chairperson of a Credit Rating committee.

Credit Rating Activities do not include attendance at management meetings or participating as an observer (i.e., non-voting member) in a rating committee.

FRJ means Fitch Ratings Japan Limited. Fitch Mexico means Fitch Mexico S.A. de C.V. IPF means International Public Finance. Non-Credit Ratings include notch-specific opinions using a public rating scale, which assess attributes other than or in addition to the credit-worthiness of a Rated Entity or its Securities (e.g., Fund Quality Ratings, Servicer Ratings, etc.). Rated Entity is defined as a legal person whose creditworthiness is rated, whether or not it has solicited that rating and whether or not it has provided information for that rating. In Mexico, a Rated Entity is the legal person which has been assigned a Credit Rating or Non-Credit Rating by Fitch Mexico.

Rotation Party is the Rated Entity (and for Structured Finance, any other related third party 4 ) around which Analysts must rotate, as follows: • For Corporate Finance, Sovereigns and IPF, the Rotation Party is the issuer for which the Credit Rating has been assigned; or for Mexico, the legal person which has been assigned a Non-Credit Rating by Fitch Mexico. • For Structured Finance, the Rotation Party is: - For EU and Mexico sole originator transactions, the originator of the transaction; - For EU and Mexico multi-originator transactions, the arranger or sponsor of the Special Purpose Vehicle (“SPV”); and - For all transactions where the primary Analyst is an employee of FRJ, a combination of the principal originator and arranger.

Rotation Period is the period of time that an Analyst is permitted to be involved in Credit Rating Activities with respect to a Rated Entity, or for Fitch Mexico Non-Credit Rating activities, before rotation is required. The Rotation Period commences at the Analytical Start Date and ends at the time period specified by the particular regulatory requirement for the particular type of Analyst or rating type. 3.0 EU Rotation Requirements 3 For purposes of determining a Consecutively Participating Analyst, does not include committees where a Rated Entity was placed on Rating Watch with no other rating action taken.

4 The EU regulatory definition of a related third party is “the originator, arranger, sponser, servicer or any other party that interacts with a credit rating agency on behalf of a rated entity, including any person directly or indirectly linked to that rated entity by control”.

European Union Transparency Report March 2018 21 The EU rotation requirements apply only to international scale, public Credit Ratings, where the individual Analyst is located in the EU 5 . 3.1. Primary Analysts (All Ratings Groups) Except as is set forth in Section 3.4, the Rotation Period for primary Analysts located in the EU is a four year period from the Analytical Start Date.

After completion of the Rotation Period, primary Analysts are not permitted to be involved in public Credit Rating Activities with respect to the relevant Rotation Party for a minimum of two consecutive years.

3.2. Secondary Analysts (All Sovereign/IPF Ratings and All Unsolicited Ratings) The EU rotation requirements for secondary Analysts located in the EU apply only for Sovereign and IPF public Credit Ratings (for both solicited and unsolicited Credit Ratings) and with respect to all unsolicited public Credit Ratings across all asset classes. In such cases, the Rotation Period is a five year period from the Analytical Start Date. After completion of the Rotation Period, secondary Analysts are not permitted to be involved in public Credit Rating Activities with respect to the relevant Rotation Party for a minimum of two consecutive years.

3.3. Committee Chairs (All Sovereign/IPF Ratings and All Unsolicited Ratings) The EU rotation requirements for committee chairs located in the EU apply only for Sovereign and International Public Finance/IPF public Credit Ratings (for both solicited and unsolicited Credit Ratings) and with respect to all unsolicited public Credit Ratings across all asset classes.

In such cases, the Rotation Period is a seven year period from the Analytical Start Date. After completion of the Rotation Period, committee chairs are not permitted to be involved in public Credit Rating Activities with respect to the relevant Rotation Party for a minimum of two consecutive years. 3.4. Additional Requirement for Same Arranger and Sole Originator Structured Finance Transactions For Structured Finance Credit Ratings, if the same originator and arranger (an arranger is defined as the financial institution that has arranged the transaction) participate together on three different transactions in a twelve month period for which the same primary Analyst located in the EU has been assigned, that primary Analyst must be rotated away from the originator immediately, regardless of whether the normal Rotation Period has expired.

In such cases, the primary Analyst is not permitted to be involved in public Credit Rating Activities with respect to the relevant Rotation Party for a minimum of two consecutive years. 4.0 Japan Rotation Requirements For Credit Ratings of insurance companies assigned or endorsed by FRJ 6 , the rotation requirements apply to all voting members of committees assigning the Credit Rating regardless of Analyst location. However, with respect to all other asset classes (i.e., non-Insurance Credit Ratings), the rotation requirements apply only to primary Analysts of Credit Ratings assigned or endorsed by FRJ.

5 Applies to committee chairs located in any Fitch CRA registered with ESMA (including any branches of these Fitch CRAs). Also applies to primary analysts and secondary analysts located in any Fitch CRA registered with ESMA that has 50 or more employees (given that all other Fitch CRAs registered with ESMA have received an exemption with respect to the requirement to rotate primary and secondary analysts), which is currently limited to the UK-domiciled Fitch Ratings Ltd. (including those persons based in the Dubai branch of Fitch Ratings Ltd.), and the UK-domiciled Fitch Ratings CIS Ltd.’s branch office in Russia.

However, the rotation requirements for the branch in Russia only became applicable starting on 2 September 2013 when the 50-person threshold was reached. Accordingly, the earliest date that rotation of any primary analyst or secondary analyst in Russia would be required, is 2 September 2017. 6 A Credit Rating is deemed “assigned” by FRJ when the primary Analyst is an employee of FRJ. A Credit Rating is deemed “endorsed by FRJ if it has formally progressed through the internal FRJ endorsement process.

European Union Transparency Report March 2018 22 4.1. For All Credit Ratings (Except for Insurance) The Rotation Period for primary Analysts employed by FRJ is a five year period from the Analytical Start Date. These primary Analyst requirements do not apply to Credit Ratings assigned or endorsed by FRJ in respect of Rated Entities that are insurance companies, which are subject to the requirements in Section 4.2. After completion of the Rotation Period, primary Analysts are not permitted to act as a primary Analyst for the Rotation Party for a minimum of two consecutive years.

However, they are permitted to be involved in Credit Rating Activities as secondary Analysts or committee chairs (or other non-primary Analyst roles) during that period.

4.2. For Insurance Credit Ratings Only The Analyst rotation requirements in Japan differ with respect to Credit Ratings assigned or endorsed by FRJ in respect of Rated Entities that are insurance companies. For insurance companies, the rotation requirements do not focus on the time period that individual Analysts are involved in Credit Rating Activities with respect to the Rated Entity. Rather, Analysts are permitted to vote continuously in committees to determine Credit Ratings for a given insurance company during the FRJ’s financial year (which is currently calendar year based). However, at least one-third of the voting members in any such committee must not be Consecutively Participating Analysts.

5.0 Mexico Rotation Requirements The Analyst rotation requirements in Mexico apply only to National ratings determined and issued by Fitch Mexico 7 . However, they apply to both Credit Ratings and to Non-Credit Rating products. Moreover, the rotation requirements apply in respect of ratings assigned to all Mexican-domiciled issuers and Rated Entities, regardless of Analyst location. 5.1 Voting Members (All Ratings Groups) All voting members of committees whereby Fitch Mexico assigns a National Scale Credit Rating or a National Scale Non- Credit Rating to a Mexican domiciled Rated Entity, are subject to the Mexican rotation requirements regardless of the location where the Analyst is based.

The Rotation Period for all such voting members is a seven year period from the Analytical Start Date. After the completion of their Rotation Period, Analysts are not permitted to vote on National Scale Credit Ratings or National Scale Non-Credit Rating products for the Rotation Party for a minimum of one year. 5.2 Additional Primary/Secondary/Chair Requirements (Mexico IPF Ratings Only) In addition to the rotation requirements for voting members of committees set forth in Section 5.1, further requirements apply to primary Analysts, secondary Analysts and committee chairs for National Scale Credit Ratings and National Scale Non-Credit Ratings assigned by Fitch Mexico to a Mexican state or municipality (a “Mexico IPF Rating”).

The Rotation Period for primary Analysts, secondary Analysts and committee chairs assigning Mexico IPF Ratings is a five year period from the Analytical Start Date.

After the completion of the relevant Rotation Period, primary analysts, secondary analysts and committee chairs are not permitted to act as, respectively, a primary/secondary/chair for the Rotation Party for a minimum of one year. 6.0 Questions For questions concerning this policy, please contact Regulatory Compliance in the relevant region (APAC, EMEA and AMER). 7 Note that as the Analyst rotation requirments in Mexico commenced on 10 October 2014, the earliest date that rotation of any Analyst would be required is 10 October 2019.

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