Proposed Regulatory Regime for Credit Rating Organizations

Background

Although credit rating organizations (CROs) are not currently subject to formal securities regulatory oversight in Canada, they nonetheless play an important role in Canadian securities legislation. If appropriately rated by an "approved credit rating organization," short-term debt securities may be distributed to the retail market under an exemption from the prospectus requirement, and are eligible investments for money-market funds, while debt securities of all maturities can be distributed by short-form prospectuses (including shelf prospectuses). Under Canadian prospectus rules, a credit rating (and certain related information) must be disclosed in the prospectus if the securities being offered have received a rating from an approved rating organization (and it is the general practice to obtain such a rating for an offering of debt securities and preferred shares).