The Rating Law was passed by the Knesset and published in the Official Gazette (Rashumot) in March 2014. The law came into force on April 1, 2015, together with the
regulations enacted pursuant to it. However, the law allows a one-year adjustment period to rating companies that were previously certified by the Commissioner of Capital Markets as credit rating companies (Midroog Ltd. and Standard & Poor's Maalot), i.e. the law will come into force for these companies on April 1, 2016.
The law regulates the operations of the rating companies, which are subject to the supervision of the ISA, with the aim of protecting investors and ensuring that rating procedures and ratings are reliable, independent, and conducted at high standards.
In view of the international regulatory activities in the area of credit rating, and due to the international nature of the credit rating companies operating in Israel, the principles of regulation determined in Israel take into consideration the arrangements existing in Europe and the United States, insofar as they are suitable for the nature of operations in Israel.
The law defines rating and determines that rating can be performed only by a company registered under this law. The law also defines the qualifications that rating companies must meet, including organizational and operating requirements; reliability of controlling owners and management, and the company's modes of supervision of their functioning; requirements that ensure rating companies' ability to determine ratings and meet legal requirements.
The law also defines obligations that are aimed at reducing conflicts of interests that arise in the course of rating companies' work, and addressing conflicts of interest where they exist, inter alia by ensuring independence of rating operations and increased transparency of the rating procedure. To this end, the law determines that rating companies must reveal their methodologies and the information underlying their ratings.
The ISA was also given supervisory and enforcement powers over rating companies, including administrative enforcement measures in the case of a violation of the law. Notably, according to the law, these powers do not apply to the content of the rating or the evaluation methods, and the law provides that the ISA will not intervene in these matters.
Supervision will be conducted in practice by the Supervision Unit of the ISA Corporate Finance Department.
