Credit Rating Agency Approval: CMA Requirements in Kenya

Credit rating agencies occupy a distinct position in Kenya’s capital markets framework. Unlike a stockbroker, dealer, fund manager, or investment adviser, which must be licensed under section 23(1) of the Capital Markets Act, a credit rating agency falls under section 23(2), which requires approval by the Capital Markets Authority (CMA) rather than a licence in the strict sense. The distinction matters for how the relationship with the regulator is framed, even though the practical compliance burden is comparable.

Approval, Not Licensing

Section 23(2) of the Capital Markets Act requires any person intending to operate as a securities exchange, registered venture capital company, collective investment scheme, central depository, or credit rating agency to be approved by the CMA. The requirements for credit rating agencies are set out in the CMA’s Guidelines on Credit Rating Agencies, which incorporate the IOSCO Code of Conduct Fundamentals for Credit Rating Agencies (2008) as the substantive standard against which an applicant’s processes are assessed.

Documentation Requirements

An application must include a certified copy of the certificate of incorporation (or certificate of compliance for a foreign applicant), certified memorandum and articles of association, a code of conduct, and a business plan covering the resumes of top management, management structure, rating methodology, rating grades, and fee structure. Applicants must also submit a sample standard agreement used with clients and a draft template of the letter of request for a rating, together with the accompanying information requirements document sent to issuers being rated.

Core Professional Capacity and Independence

The Guidelines require an applicant to evidence its capacity to perform the rating function, including experience and professional expertise, and to demonstrate that it has appointed, or is in the process of appointing, economic, financial, and research analysts with relevant backgrounds. Independence and objectivity are treated as core requirements rather than aspirational statements: the applicant must not be associated, directly or indirectly, with any group that has a conflicting interest in the rating business, must demonstrate a proven rating methodology, and must have internal checks and balances that safeguard objectivity where qualitative judgment plays a role. The rating process itself must rest on quantitative and qualitative review of facts, not on hearsay or rumour, when upgrading or downgrading an issuer or instrument.

Ownership Requirements

This is the requirement most likely to catch a new entrant off guard. The applicant must be a body corporate with predominant institutional shareholding of repute, and its shareholders, board, management, and analytical staff must be persons of impeccable character. Critically, the applicant must either be partly owned by an internationally recognised rating agency, or have a contractual arrangement with one that provides technical and strategic support drawn from international experience. An “internationally recognised” agency is defined as one that has been rating debt securities or other securities of interest to investors, where the issuer is obligated to repay the principal raised, in more than two markets for at least five years. In practice, this means a purely domestic Kenyan credit rating agency without any foreign affiliation or technical partnership does not meet the ownership test as currently framed.

Capital Requirement

The Guidelines set a minimum paid-up capital of Kshs. 12,000,000 (or its equivalent), described as a “stable financial base.” This is notably lower than the capital thresholds for online forex brokers or money managers, reflecting that a rating agency does not hold client funds or take trading positions.

Disclosure and Confidentiality Obligations

An approved credit rating agency must disclose to the CMA, issuers, and the public its general fee structure and any changes to it, downgrades of ratings, and disclosure of ratings on commercial paper or corporate bonds as applicable. At the same time, it must maintain a confidential system for handling information supplied to it strictly for rating purposes, to safeguard confidence in the rating process. These two obligations, public disclosure of outcomes and confidentiality of underlying information, sit in tension and need to be reflected clearly in the agency’s internal policies rather than left to be worked out case by case.

Fit and Proper Requirements

Directors and key personnel must each submit a complete CV, a duly completed Fit and Proper form, and a certificate of good conduct, consistent with the fit and proper standard applied across CMA-regulated entities generally.

Why the International Affiliation Requirement Matters in Practice

This requirement shapes who can realistically enter the Kenyan credit rating market. A domestic team with strong local credit analysis capability but no partnership with an established international rating house does not meet the ownership test as the Guidelines currently frame it. In practice, this has tended to favour joint ventures or technical service agreements between local sponsors and an established regional or global agency, rather than fully independent local start-ups. Anyone structuring a new entrant should treat the technical partnership as a threshold issue to resolve before drafting the rest of the application, since the business plan, methodology, and code of conduct all depend on what the international partner brings to the arrangement.

The tension between the disclosure obligation and the confidentiality obligation described above is also worth planning for early. A rating agency’s methodology and rating outcomes need to be public enough to be useful to investors and issuers, but the underlying financial and business information supplied by an issuer during the rating process needs firm confidentiality protections. Building these as two clearly separated policies, rather than one general information-handling policy, tends to hold up better under CMA review.

Application Fee

The CMA’s Credit Rating Agency checklist does not itself state an application fee, unlike the checklists for other licence and approval categories. A general CMA statement on its licensing and approvals process refers to an application fee of Kshs. 2,500 payable by company cheque, but it is not certain this figure applies identically to the credit rating agency approval category rather than only to section 23(1) licence categories. This should be confirmed directly with the CMA before being quoted to a client as a fixed cost.

How This Fits the Wider CMA Framework

Credit rating agency approval sits alongside registered venture capital companies, collective investment schemes, central depositories, and securities exchanges as one of the section 23(2) approval categories, distinct from the licensing categories that cover brokers, dealers, and fund managers. For a broader view of the CMA’s licensing regime, including how licensing differs from approval, see our overview of Capital Markets Authority licensing in Kenya.

How We Can Help

Clay & Associates Advocates advises applicants on structuring a CMA credit rating agency approval application, including the ownership and technical partnership structure that satisfies the international-affiliation requirement, and on building the code of conduct and confidentiality policies the Guidelines demand. Because this approval category is used far less often than broker or fund manager licensing, there is less established market practice to draw on, which makes getting the ownership and methodology documentation right on first submission more important, not less. A rejected or delayed first application can also affect an applicant’s standing with the international partner it is relying on for the technical arrangement, which is an additional reason to treat the initial submission carefully rather than as a first draft to be corrected through back-and-forth with the Authority. Contact our regulatory and compliance team to discuss an application or a compliance review of an existing approval.

Sources: Capital Markets Act, section 23(2); Capital Markets Authority, Guidelines on Credit Rating Agencies compliance checklist; IOSCO Code of Conduct Fundamentals for Credit Rating Agencies (2008).