Securities Law & Instruments

Headnote

National Policy 11-205 Process for Designation of Credit Rating Organizations in Multiple Jurisdictions -- Application by a designated rating organization to amend and restate its designation order to include a German affiliate as a "DRO affiliate" and remove references to a Mexican affiliate.

Applicable Legislative Provisions

Securities Act (Ontario), R.S.O. 1990, c. S.5, as am., ss. 22, 144.

National Instrument 25-101 Designated Rating Organizations, s. 6.

December 14, 2018

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR DESIGNATION OF CREDIT RATING ORGANIZATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF DBRS LIMITED (the Filer)

AMENDED AND RESTATED DESIGNATION ORDER

Background

The principal regulator in the Jurisdiction previously designated the Filer as a designated rating organization, as contemplated by National Instrument 25-101 Designated Rating Organizations (NI 25-101), pursuant to the October 2016 Designation (defined below).

The principal regulator in the Jurisdiction has received an application from the Filer for an amended and restated decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that permits the addition of DBRS Germany (as defined below) as a DRO affiliate of the Filer and the removal of DBRS México (as defined below) as a DRO affiliate of the Filer, as contemplated by NI 25-101.

Under the Process for Designation of Credit Rating Organizations in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission (the Commission) is the principal regulator (the Principal Regulator) for this application; and

(b) the Filer has provided notice that section 4B.6 of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories, Yukon and Nunavut (the Passport Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions, MI 11-102 or NI 25-101 have the same meanings in this decision, unless otherwise defined herein.

Representations

This decision is based on the following facts represented by the Filer:

The Filer

1. The Filer is a corporation governed by the Business Corporations Act (Ontario) with its registered and principal offices located in Toronto, Ontario.

2. The Filer provides credit rating opinions to a broad range of financial institutions, corporate entities, government bodies and various structured finance product groups in North America, Europe, Australasia and South America.

3. Affiliates of the Filer are incorporated in the United States of America, the European Union and Mexico as follows:

(a) DBRS, Inc. (DBRS US) is a corporation existing under the laws of Delaware. DBRS US is registered with the SEC as a nationally recognized statistical rating organization (NRSRO), and the Filer is a credit rating affiliate (as that term is defined in SEC Form NRSRO) of DBRS US;

(b) DBRS Ratings Limited (DBRS UK) is a company incorporated in England and Wales and is a registered credit rating agency in the EU. DBRS UK is a credit rating affiliate (as that term is defined in SEC Form NRSRO) of DBRS US;

(c) DBRS Ratings México, Institución Calificadora de Valores, S.A. de C.V. (DBRS México) is a company existing under the laws of México;

(d) DBRS Ratings GmbH (DBRS Germany) is a company existing under the laws of Germany and is a registered credit rating agency in the EU. DBRS Germany is a credit rating affiliate (as that term is defined in SEC Form NRSRO) of DBRS US.

DRBS US, DBRS UK, DBRS México and DBRS Germany are hereinafter collectively referred to as the Affiliates.

4. The Filer is privately owned and operated and is not a reporting issuer. DBRS was acquired in 2015 by a consortium led by The Carlyle Group (a global alternative asset manager) and Warburg Pincus (a global private equity firm). Currently, the Filer, together with DBRS US and DBRS UK, rates more than 1,000 different companies and single-purpose vehicles that issue commercial paper, term debt and preferred shares in the global capital markets.

5. On April 30, 2012, the Commission temporarily designated:

(a) the Filer as a designated rating organization under the Legislation, and

(b) each of DBRS US and DBRS UK as DRO affiliates (the April 2012 Designation).

The April 2012 Designation subsequently expired and was replaced by a permanent order dated October 31, 2012 (the October 2012 Designation). On October 27, 2016, the October 2012 Designation was further amended and replaced by an order that designated the Filer as a designated rating organization under the Legislation and each of DBRS US, DBRS UK and DBRS México as DRO affiliates under the Legislation (the October 2016 Designation).

6. The Filer was granted exemptive relief from certain aspects of NI 25-101 pursuant to an order granted by the Principal Regulator on October 31, 2012 (the Exemption Order).

Compliance with NI 25-101

7. Each of the Filer, DBRS US, DBRS UK and DBRS Germany have established a board of directors or supervisory board (each, a Board). Each Board includes two non-executive independent directors. At least two members of each Board (including one independent member) have in-depth knowledge and experience at a senior level regarding the markets for structured finance products. The Board of the Filer complies with the composition requirements in section 8 of NI 25-101 and section 2.22 of Appendix A to NI 25-101.

8. The Filer has adopted and implemented its Business Code of Conduct for the DBRS Group of Companies (the Business Code) which reflects adherence to the International Organization of Securities Commission's Code of Conduct Fundamentals for Credit Rating Agencies (the IOSCO Code) and which has been revised to satisfy the requirements of NI 25-101. Each of the Affiliates are subject to the Business Code.

9. The Filer has also implemented a range of globally applicable policies, procedures and internal controls (Policies) that are designed to achieve the objectives set out in the IOSCO Code and satisfy regulatory requirements that the Filer implements globally. The Policies satisfy the requirements of NI 25-101.

10. The Board of the Filer has responsibility for performing the functions prescribed by Part 3 of NI 25-101 and sections 2.22 through 2.25 of Appendix A of NI 25-101.

11. The Filer has appointed a designated compliance officer to fulfil the functions prescribed by Part 5 of NI 25-101. The designated compliance officer has a direct reporting relationship to the Board of the Filer.

12. The Business Code and the Policies are consistent in all material respects with the objectives of NI 25-101 and enable the Filer to:

(a) accommodate the global nature of the Filer's operations;

(b) ensure the objectivity and integrity of its credit ratings and the transparency of its operations; and

(c) meet specific jurisdictional requirements, in addition to those which are reflected in the Business Code.

13. The Filer is in compliance in all material respects with the October 2016 Designation, the Exemption Order, NI 25-101 and the securities legislation applicable to credit rating organizations in each jurisdiction in Canada and in any other jurisdiction in which the Filer or the Affiliates operate.

14. The Filer is subject to the requirements set out in the Legislation and the securities legislation in each of the Passport Jurisdictions.

15. The Filer has undertaken to the Commission that it will provide Commission staff with English translations of any relevant documents that:

(a) were originally prepared in a language other than English and relate to DBRS Germany or ratings of DBRS Germany, and

(b) are reasonably requested by Commission staff in the course of a compliance review or any other investigation or review under the Legislation.

16. On December 14, 2018, DBRS Germany was registered as a credit rating agency in accordance with Regulation (EC) No. 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies.

17. DBRS México has ceased all rating activity and discontinued all of its outstanding ratings. On November 20, 2018, upon application by DBRS, the Comisión Nacional Bancaria y de Valores discontinued the authorization of DBRS México to operate as a rating agency in México.

Decision

The Principal Regulator is satisfied that this decision meets the test set out in the Legislation for the Principal Regulator to make this decision.

The decision of the Principal Regulator under the Legislation is that:

(a) the October 2016 Designation is hereby revoked,

(b) the Filer is designated as a designated rating organization under the Legislation; and

(c) each of DBRS US, DBRS UK and DBRS Germany are designated as DRO affiliates.

"Grant Vingoe"
Vice-Chair
Ontario Securities Commission
 
"Maureen Jensen"
Chair
Ontario Securities Commission