PrepLicense: HK SFC · Study notes · Paper 10
SFC LE Paper 10: Credit Rating Services
Paper 10 covers credit rating services in practice: methodologies, the rating process, conflicts management and information handling.
1. The function of credit ratings
A rating is an opinion on the credit risk of an entity or instrument — not investment advice, and not a guarantee of repayment. That distinction is a common exam trap.
2. Rating scales and definitions
The investment-grade/speculative-grade boundary, how long-term and short-term scales map to each other, and what outlooks and watchlists signify.
3. Rating methodologies
Methodologies must be published, applied consistently and reviewed periodically; material changes must be disclosed with their impact on existing ratings.
4. The rating process
From information gathering, analyst recommendation and rating committee vote through to publication and notification of the rated entity — know the division of duties and record requirements at each step.
5. Managing conflicts of interest
The inherent conflict in the issuer-pays model, the prohibition on linking analyst pay to rating outcomes or business volume, and separation of ancillary business from rating activity.
6. Analyst independence and rotation
Analysts must not take part in fee negotiations and must rotate as required, to avoid over-familiarity with rated entities.
7. Handling non-public information
Rating work involves substantial inside information; confidentiality regimes and information barriers are required, with safeguards against pre-publication leakage.
8. Surveillance and withdrawal
Published ratings must be kept under surveillance and updated when warranted; withdrawal follows a defined process with an explanation to the market.
Sources and how to use these notes
These notes are organised around the syllabus areas published by HKSI Institute and are conceptual summaries — use them to build a framework and to revise quickly before the exam. For specific provisions, numeric thresholds and question weightings, rely on the latest official HKSI study material and the SFC source texts.
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