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17 July 2014 – Credit Rating Agencies (CRAs) fulfill an important role in the capital market by predicting the probability of a borrower to comply with its commitments and repay the debt. This information is often taken into consideration by investors and, eventually, impacts on the interest rate that a borrower has to pay. Due to the material position of the CRAs in the capital market, and arguments regarding their role in some of the major financial crises which occurred in the last years, and in light of the fact that this matter was regulated in Israel only indirectly till now, the Israeli legislator has published recently a new law regarding the regulation of the activity of CRAs in Israel. Set forth below are some of the material changes arisen from this new law:

  • In order to ensure the CRAs proper course of business and the regulator’s ability to inspect its work, the new law requires that a credit rating activity will be performed only by a company that has registered under the law’s requirements.
  • The law imposes various duties on CRAs, for example: the choice of assessment methodologies used in the rating process and the need of re-evaluating it, provisions regarding corporate governance and restrictions on holdings by the CRAs. These provisions seek to guarantee the CRAs independence and the reliability of their management and to prevent conflict of interests in the rating process.
  • The law empowers the Israeli Securities Authority (“ISA”) to supervise CRAs and their and to impose financial sanctions in case of breach of the law’s provisions.
  • The administrative enforcement committee of the ISA is authorized to conduct an enquiry of violations and to take administrative enforcement measures, if such actions are necessary.
  • The law also includes provisions regarding the CRAs’ civil liability towards investors.

This new legislation which was made by the influence of existing regulations in Europe and the U.S., is intended improve the investors’ ability to conduct well-informed decisions in the capital market and to ensure that the credit rating process will be conducted fairly, transparently and without conflict of interests. By Amit Steinman and Michal Tagrin


Amit Steinman is a partner at the Israel based law firm S. Horowitz & Co. He advises on the full range of corporate and commercial transactions with a particular focus on mergers and acquisitions, joint ventures, equity investments, capital markets and acquisition financing. His clients include multinational corporations, financial institutions, private equity funds and start-up companies, spanning a wide range of sectors including technology, energy, infrastructure, telecoms, homeland security, financial services, media and clean-tech.

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