The Prudential Authority has announced the derecognition of Moody’s Investors Service South Africa as an eligible external credit assessment institution, following the FSCA’s cancellation of its registration. While this move does not impact South Africa’s sovereign rating, banks have a 24-month transition period to adjust to the change.
The Prudential Authority (PA) has officially notified banks of its decision to derecognise Moody’s Investors Service South Africa as an eligible external credit assessment institution ( ECAI ).
This action follows a prior notice from the Financial Sector Conduct Authority (FSCA) on April 16, which confirmed the cancellation of Moody’s registration as a credit ratings agency under the Credit Rating Services Act. Despite this regulatory shift, South Africa’s sovereign rating, assigned by the global Moody’s Investors Service, remains unaffected.
Additionally, ratings on local issuers provided by Moody’s analysts based outside South Africa will continue to be valid. The PA, operating under the South African Reserve Bank (SARB), ensures the stability and soundness of financial institutions. Banks may still use external credit ratings issued by Moody’s Ratings-SA for a transitional period of 24 months, as outlined in the notice signed by PA CEO Fundi Tshazibana.
The FSCA’s April 16 notice, signed by Kedibone Dikokwe, revealed that Moody’s voluntarily relinquished its registration as a credit rating agency in South Africa. The FSCA consulted the PA before finalising the cancellation, as required by the Credit Rating Services Act, given the reliance on Moody’s ratings in supervisory and regulatory activities. A Moody’s spokesperson clarified that the agency will now focus on serving cross-border investors and African issuers seeking international funding, maintaining a relationship management presence in Johannesburg.
Moody’s also highlighted its investment in GCR, a pan-African ratings agency with operations in South Africa, Nigeria, Kenya, Senegal, and Mauritius, emphasizing its commitment to Africa’s long-term growth. The spokesperson noted that Moody’s ongoing support for GCR, through knowledge exchange and joint initiatives, aims to enhance transparency and investment in Africa’s burgeoning domestic debt markets. Under the Credit Rating Services Act, Moody’s Ratings South Africa is now prohibited from issuing credit ratings or providing related services in the country.
Regulated entities are also barred from using Moody’s Ratings-SA for regulatory purposes. However, the law allows a three-month grace period for existing ratings, extendable by the FSCA to mitigate market disruption. The FSCA granted a 24-month extension to ensure financial stability and prevent disruptions for South African banks relying on Moody’s ratings. Moody’s Ratings-SA must retain records of its credit rating services for at least five years and inform all rated entities of its deregistration.
South Africa, as a member of the Basel Committee on Banking Supervision, permits the use of external credit ratings for determining banks’ minimum regulatory capital and reserve funds. These ratings must be issued by ECAIs recognised by national supervisors. Banks are required to align their exposures with ratings from approved ECAIs. The Banks Act stipulates that banks cannot use ratings from an unapproved ECAI for capital calculations without prior written approval from the PA.
Moody’s maintained South Africa’s sovereign rating at Ba2 with a stable outlook, unaffected by these regulatory changes
Prudential Authority Moody’S Ratings-SA ECAI Credit Rating Services Act Financial Stability
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