Fitch Ratings Canada, Inc and Fitch Ratings, Inc.

Decision

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Confidentiality -- Application by a designated rating organization (DRO) for a decision that sections of Form 25-101F1 Designated Rating Organization Application and Annual Filing be held in confidence for an indefinite period by the Commission, to the extent permitted by law -- Subject information discloses intimate financial, personal or other information and that the desirability of avoiding disclosure thereof in the interests of any person or company affected outweighs the desirability of adhering to the principle that material filed with the Commission be available to the public for inspection -- Relief granted subject to conditions.

Application by a DRO for exemptive relief from section 11 of National Instrument 25-101 Designated Rating Organizations -- Filer's code of conduct does not specify that the DRO must not waive provisions of its code of conduct -- Filer's code of conduct, as well as the policies, procedures and internal controls, is consistent in all material respects with the objectives of NI 25-101.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., s. 140(2).

National Instrument 25-101 Designated Rating Organizations, ss. 11, 14 and 15.

May 23, 2025

IN THE MATTER OF
THE SECURITIES LEGISLATION OF ONTARIO
(the Jurisdiction)

AND

IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF
FITCH RATINGS CANADA, INC. AND FITCH RATINGS, INC.
(the Filers)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from Fitch Ratings Canada, Inc. (Fitch Canada) and Fitch Ratings, Inc. (Fitch US, and together, the Filers) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that:

(a) pursuant to the confidentiality provisions of the Legislation (being subsection 140(2) of the Securities Act (Ontario)), for any filing on Form 25-101F1 Designated Rating Organization Application and Annual Filing (Form 25-101F1) by Fitch Canada,

(i) the information referred to in Item 13 of Form 25-101F1, which may be calculated at a global level for Fitch US as a whole, be held in confidence (and therefore not available to the public for inspection) for an indefinite period, to the extent permitted by law;

(ii) the information referred to in Item 14 of Form 25-101F1, which may be calculated at a global level for Fitch US as a whole, be held in confidence (and therefore not available to the public for inspection) for an indefinite period, to the extent permitted by law; and

(iii) the information referred to in Item 15 of Form 25-101F1 be held in confidence (and therefore not available to the public for inspection) for an indefinite period, to the extent permitted by law,

(collectively, the Confidentiality Relief);

(b) pursuant to exemption provisions of the Legislation (being section 15 of National Instrument 25-101 Designated Rating Organizations (NI 25-101)), Fitch Canada be exempted from the requirement in section 11 of NI 25-101, provided that Fitch Canada complies with the Fitch Code (as defined below) and complies with the procedures described at paragraphs 28 and 29 of this Decision Document (the Code of Conduct Relief); and

(c) the original code of conduct relief granted to Fitch US on October 31, 2012 be revoked.

On October 31, 2012, the principal regulator in the Jurisdiction granted a designation order (the 2012 Designation Order) which designated Fitch US as a designated rating organization (DRO) and pursuant to which certain credit rating affiliates listed in Appendix A to the 2012 Designation Order were designated as DRO affiliates. The 2012 Designation Order was replaced by an amended and restated designation order dated April 25, 2022 (the 2022 Designation Order).

In a concurrent decision issued to Fitch US on October 31, 2012, the principal regulator in the Jurisdiction issued an order that:

(a) pursuant to the confidentiality provisions of the Legislation (being subsection 140(2) of the Securities Act (Ontario)) for any filing on Form 25-101F1 by Fitch US,

(i) the information referred to in Item 13 of Form 25-101F1, which may be calculated at a global level for Fitch US as a whole, be held in confidence (and therefore not available to the public for inspection) for an indefinite period, to the extent permitted by law;

(ii) the information referred to in Item 14 of Form 25-101F1, which may be calculated at a global level for Fitch US as a whole, be held in confidence (and therefore not available to the public for inspection) for an indefinite period, to the extent permitted by law; and

(iii) the information referred to in Item 15 of Form 25-101F1 be held in confidence (and therefore not available to the public for inspection) for an indefinite period, to the extent permitted by law

(collectively, the Original Confidentiality Relief); and

(b) pursuant to section 15 of NI 25-101, Fitch US be exempted from the requirement in section 11 of NI 25-101, relating to waiving provisions of its code of conduct, subject to certain conditions described in the Original Order (Original Code of Conduct Relief).

For greater certainty, the Filers are only applying for a revocation of the Original Code of Conduct Relief and not the Original Confidentiality Relief.

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

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

b) the Filers have provided notice that section 4.7(1) 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 Filers:

Fitch Canada

1. Fitch Canada is a corporation incorporated under the Business Corporations Act (British Columbia) with its head office and principal office at 120 Adelaide Street West, Suite 2500, Toronto, Ontario M5H 1T1.

2. Fitch Canada is a wholly-owned subsidiary of Fitch US, formerly known as Fitch, Inc.

3. Fitch US provides credit rating opinions, research and risk analysis to a broad range of financial institutions, corporate entities, government bodies and various structured finance product groups in North America, Europe, Africa, Australasia and South America.

4. Fitch US is a Nationally Recognized Statistical Rating Organization (NRSRO) regulated in the United States by the Securities and Exchange Commission (SEC), which includes related global offices that issue ratings under the Fitch Ratings global brand. Currently, Fitch US, together with its affiliates, rates more than 11,339 different companies and single-purpose vehicles that issue commercial paper, term debt and preferred shares in the global capital markets.

5. For operational and business reasons, Fitch US has determined to incorporate the Filer and to transfer to Fitch Canada the assets of its Canadian office located in Toronto, Ontario.

6. Each of Fitch Canada and Fitch US is in compliance in all material respects with NI 25-101 and the securities legislation applicable to credit rating organizations in each jurisdiction in Canada and in any other jurisdiction in which Fitch US and Fitch Canada or their credit rating affiliates operate.

7. In a concurrent decision, the Principal Regulator designated Fitch Canada as a DRO under the Legislation and revoked the 2022 Designation Order.

The Confidentiality Relief

8. Subsection 6(1) of NI 25-101 requires a credit rating organization that applies to be a designated rating organization to file a completed Form 25-101F1. Despite subsection 6(1), a credit rating organization that is an NRSRO may file its most recent Form NRSRO.

9. In addition, for subsequent years, subsection 14(1) of NI 25-101 requires a DRO to file a completed Form 25-101F1 no later than 90 days after the end of its most recently completed financial year.

10. Item 13 of Form 25-101F1 requires a DRO to disclose information, as applicable, regarding the applicant's aggregate revenue for the most recently completed financial year including: revenue from determining and maintaining credit ratings, revenue from subscribers, revenue from granting licenses or rights to publish credit ratings, and revenue from all other services and products offered by the DRO. Item 13 of Form 25-101 also provides that the financial information on the revenue of the DRO be divided into fees from credit rating and non-credit rating activities (the Item 13 Information).

11. In the United States, Exhibit 12 to Form NRSRO requires NRSROs to provide "[i]nformation regarding revenues for the fiscal or calendar year ending immediately before the date of the initial application." Such information is provided for subsequent years pursuant to SEC Rule 17g-3(a)(3) under the Securities Exchange Act of 1934 (1934 Act). However, NRSROs are permitted to provide this information confidentially. Likewise, Regulation (EC) No 1060/2009 of the European Parliament and of the Council, of 16 September 2009, on credit rating agencies (the EU Regulation) provides that such information must be provided annually to the European Securities and Markets Authority (ESMA) but need not be disclosed publicly.

12. Item 14 of Form 25-101F1 requires a DRO to disclose "a list of the largest users of credit rating services of the applicant by the amount of net revenue earned by the applicant attributable to the user during the most recently completed financial year". It also requires the DRO to disclose "a list of users of credit rating services whose contribution to the growth rate in the generation of revenue of the applicant in the previous fiscal year exceeded the growth rate in the applicant's total revenue in that year by a factor of more than 1.5 times" (the Item 14 Information).

13. In the United States, Exhibit 10 to Form NRSRO requires NRSROs to provide "[a] list of the largest users of credit rating services by the amount of net revenue earned from the user during the fiscal year ending immediately before the date of the initial application". Such information is provided for subsequent years pursuant to SEC Rule 17g-3(a)(5) under the 1934 Act. However, NRSROs are permitted to provide this information confidentially. Likewise, the EU Regulation provides that credit rating organizations must provide certain revenue related information annually to ESMA and to the credit rating organization's home regulator but such information need not be disclosed publicly.

14. Public disclosure of the Item 13 Information and/or the Item 14 Information would make that information available to the Filers' analysts. The Filers believe that confidential treatment of the Item 13 Information and/or Item 14 Information helps to shield this information from the Filers' analysts, thereby bolstering independence in the rating process by insulating the Filers' analysts from commercial influences. In addition, some of the Item 13 Information and/or Item 14 Information is competitively sensitive information of the Filers.

15. Item 15 of Form 25-101F1 requires a DRO to attach a copy of the audited financial statements of the applicant, which must include a statement of financial position, a statement of comprehensive income, and a statement of changes in equity, for each of the three most recently completed financial years (the Item 15 Information and, collectively with the Item 13 Information and the Item 14 Information, the Sensitive Information).

16. In the United States, Exhibit 11 to Form NRSRO requires NRSROs to provide "[a]udited financial statements for each of the three fiscal calendar years ending immediately before the date of the initial application." Such information is provided for subsequent years pursuant to SEC Rule 17g-3(a)(1) under the 1934 Act. However, NRSROs are permitted to provide this information confidentially. The EU Regulation does not have a similar requirement to provide such information on a yearly basis.

17. Fitch Canada is a privately held company that does not publicly issue audited financial statements.

18. Consistent with the requirements applicable to NRSROs under the 1934 Act and the EU Regulation, Fitch Canada proposes to file the Sensitive Information on a confidential basis with the Principal Regulator.

19. Section (4) of the Instructions to Form 25-101F1 provides that an applicant may apply to the securities regulatory authority to hold in confidence portions of Form 25-101F1 which disclose intimate financial, personal or other information.

20. The Sensitive Information constitutes intimate financial, personal or other information related to the credit rating activities of the Filer that is not otherwise publicly available.

21. The Filers believe that none of the Sensitive Information, either individually or in the aggregate, is necessary to understand the remaining information provided in Form 25-101F1.

22. The Filers believe that: (i) the negative implications to the Filers, issuers or an investor relying on a credit rating were the Sensitive Information to be made public outweigh the desirability of adhering to the principle that material filed with the Principal Regulator be available to the public for inspection, and (ii) the disclosure of the Sensitive Information is not necessary in the public interest.

23. The Filers believe that the Sensitive Information is not material to an analyst, an issuer or an investor relying on a credit rating and, therefore, there is no prejudice or harm to the public as a result of the Sensitive Information remaining confidential.

The Code of Conduct Relief

24. Fitch US has adopted and implemented the Fitch Code of Conduct & Ethics (the Fitch Code), which is designed to be substantially aligned with the International Organization of Securities Commissions Code of Conduct Fundamentals for Credit Rating Agencies and includes provisions adopted to satisfy the requirements of NI 25-101.

25. Fitch Canada has elected to rely on the Fitch Code to satisfy the requirements and functions prescribed by Part 4 of NI 25-101 and the Filers, including Fitch Canada, will comply with the requirements of the Fitch Code.

26. Fitch US has also appointed a compliance officer (the Chief Compliance Officer) to fulfill the functions set forth in NI 25-101, including monitoring and assessing compliance by Fitch US and its DRO employees with the Fitch Code and the Legislation. Such compliance officer will cover Fitch Canada and fulfill the designated compliance officer functions prescribed by Part 5 of NI 25-101.

27. Section 11 of NI 25-101 provides that a DRO's code of conduct must specify that a DRO must not waive provisions of its code of conduct.

28. Sections 1.1 and 2.2.7 of the Fitch Code provides as follows:

"Fitch Ratings, Inc. and each of its subsidiaries that issue ratings under the trade name Fitch Ratings ("Fitch Ratings") are committed to providing the world's securities markets with objective, timely, independent, and forward-looking credit opinions. In this respect, Fitch Ratings is dedicated to several core principles -- objectivity, independence, integrity, and transparency.

This Code of Conduct and Ethics (the "Code") is intended to provide information as to how Fitch Ratings will function in accordance with those principles and is designed to comply with applicable laws, rules, and regulations in the jurisdictions in which Fitch Ratings operates. The Code is based on the provisions of the IOSCO Code of Conduct Fundamentals for Credit Rating Agencies. The Code is supplemented by and consistent with other internal policies and procedures that govern Fitch Ratings' activities, businesses, and operations, many of which are available on Fitch Rating's free public website, www.fitchratings.com (see also Appendix A). Fitch Ratings will disclose on a timely basis any changes to this Code or to how this Code is implemented and enforced.

Fitch Ratings expects its employees to act in accordance with the highest standards of personal and professional integrity and to comply with all applicable laws, rules and regulations, and all policies and procedures adopted by Fitch Ratings that govern the conduct of Fitch Ratings employees. Each employee is personally responsible for maintaining the highest levels of integrity to preserve the trust and confidence of global investors.

While Fitch Ratings will need to interpret how to most effectively implement the provisions in the Code when developing its policies, procedures and controls, and while from time to time Fitch Ratings may need to deviate from certain requirements in the Code, Fitch Ratings shall at all times remain true to its core principals and the underlying principles of the IOSCO Code of Conduct Fundamentals for Credit Rating Agencies.

[...]

Fitch Ratings' employees are not expected to be experts in the law. Nonetheless, they are expected to report to the Chief Compliance Officer, or their designee, the activities about which they have knowledge that a reasonable person would question as a potential violation of this Code or applicable law. The Chief Compliance Officer, or their designee, shall determine the merits of the situation and, if warranted, take appropriate action. Any employee who, in good faith, makes such a report shall not be retaliated against by Fitch Ratings or any other employees of Fitch Ratings. The Chief Compliance Officer has established and shall maintain procedures for employees to report any illegal, unethical, or inappropriate conduct, including, to the extent practical, through various telephonic and electronic means, on both an anonymous and a disclosed basis. Failure by any Fitch Ratings employee to comply with the provisions of this Code may result in disciplinary action being taken against the employee, up to and including the dismissal of the employee."

29. All requests for deviations from the Fitch Code are managed through Fitch US' Exception Management System (EMS), which requires that all deviation requests must be approved by senior managers who hold the title of managing director of a group (or higher). Such authorized individuals will typically have duties which include ensuring compliance with Fitch policies and procedures, including the Fitch Code, and are trained on compliance matters. They are responsible for reviewing the submitted deviation and making a determination on such requested deviation. Fitch US' Chief Compliance Officer and staff oversee compliance with the Fitch Code, the policies referenced in the Fitch Code and the laws, rules, and regulations governing the activities of credit rating agencies. While the Chief Compliance Officer and staff do not have the authority to grant exceptions to the Fitch Code, the Compliance Department will typically be consulted as part of any decision to grant an exception to the Fitch Code. Fitch US' Compliance Department monitors and then reports EMS deviations to senior management and the Board of Directors. Deviation related discipline is dependent on various factors such as the gravity of the deviation and is determined by Fitch's Employee Accountability Procedures. The Chief Compliance Officer also oversees the design, implementation, and performance of a periodic review and testing process through which compliance with the Fitch Code and related policies and procedures of Fitch US are thoroughly assessed.

30. The Fitch Code, as well as the policies, procedures and internal controls, is consistent in all material respects with the objectives of NI 25-101 and enables Fitch US to:

(a) accommodate the global nature of Fitch US' operations;

(b) implement high level principles that govern the conduct of the credit rating activities of Fitch US and its affiliates (including the Filer) and underlying regulatory requirements in the jurisdictions where Fitch US and its affiliates (including the Filer) conduct credit rating activities; and

(c) maintain and enforce globally consistent policies, procedures and internal controls that meet specific jurisdictional requirements, in addition to those which are reflected in the Fitch Code.

31. The Chief Compliance Officer annually reviews and assesses the efficacy of the implementation and enforcement of the Fitch Code.

32. The reporting line of the Chief Compliance Officer is independent of the credit rating activities of Fitch US and its affiliates (including Fitch Canada). The Chief Compliance Officer, while serving in such capacity, may not participate in any of the following:

(a) the development of credit ratings, methodologies or models; and

(b) the establishment of compensation levels, other than for DRO employees reporting directly to the Chief Compliance Officer.

33. Within 90 days of its most recently completed financial year end, Fitch Canada will deliver on a confidential basis to the Principal Regulator a report outlining any written waiver granted under section 1.1 of the Fitch Code, including a description of the nature of the request and the relevant facts supporting the request.

34. Neither Fitch Canada nor Fitch US is in default of securities legislation in any of the Jurisdiction or the Passport Jurisdictions.

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 Confidentiality Relief is granted provided that the Sensitive Information, which may be calculated at a global level for Fitch US as a whole, is provided to the Principal Regulator on a confidential basis concurrently with the filing of Form 25-101F1 by Fitch Canada; and

(b) the Code of Conduct Relief is granted provided that:

(i) Fitch Canada complies with the procedures regarding waivers set out in the Fitch Code and described at paragraphs 28 and 29 of this Decision Document; and

(ii) Fitch Canada complies with paragraph 33 of this Decision Document.

(c) the Original Code of Conduct Relief is revoked.

With respect to the Confidentiality Relief:

"D. Grant Vingoe"
Chief Executive Officer
Ontario Securities Commission

With respect to the Code of Conduct Relief and the revocation of the Original Code of Conduct Relief:

"Leslie Milroy"
Manager, Corporate Finance
Ontario Securities Commission

OSC File #: 2020/0578