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Internal Control Mechanisms

All rating analysts must follow CCXAP’s rating procedures for credit rating analysis. The procedures are enforced by two internal control mechanisms: (1) the Credit Rating Committee and (2) the Conflicts Avoidance System.

Credit Rating Committee

Position and Responsibility of the Credit Rating Committee

1.        The Credit Rating Committee (CRC) is the highest authority to approve credit ratings.

2.        The CRC should ensure the rating process is rigorous, independent and that the assigned credit rating is objective and fair.

3.    a. Endorse the CCXAP’s credit rating system, rating policy and rating principles.

b. Endorse the credit rating methodologies, index systems, rating procedures, and standards of the company.

c. Endorse the original rating and surveillance rating.

d. Review rating results to ensure accuracy and stability of the credit ratings assigned.

Composition of the CRC

1.      The CRC is composed of a minimum of three members including Chairman of CRC, and CRC members are from CCXAP and the China Chengxin Group.

2.       The CRC Chairman is elected by the board of directors of CCXAP for a term of three years and can be re-elected. CRC members are appointed by the Chairman of the CRC for a term of three years and can be re-elected on a rollover basis.

3.        The CRC Chairman takes chair of the CRC meetings.

4.      CRC members may resign, and can be added, replaced or dismissed by the CRC Chairman under certain conditions:-

a.        If, at any time, the number of CRC members falls below three, additional member(s) should be appointed within a month.

b.        If any CRC member has committed gross negligence, he or she will be dismissed

c.      The appointment process of new CRC members follows the process stated in (2) above.

5.     The CRC Secretary, who is an officer of the CCXAP, is nominated by the CRC Chairman. The CRC Secretary is the contact person for CRC members, and is responsible for issuing meeting notices, taking meeting minutes, and the filing of CRC documents.

Qualifications of CRC members

1.      The Responsible Officers, senior credit analysts and external experts are eligible to become CRC members.

2.      CRC members should have solid working experience in credit rating and the ability to make independent, objective and fair judgments. CRC members should have a thorough understanding of credit determinants, credit rating procedures and methodologies.

Major Responsibilities of CRC Members

1.     Show credit rating directions, advise on policies, and approve the working procedures of credit rating activities.

2.      Express independent views and cast votes to determine the final credit rating of a Rating Target at CRC meetings.

3.        Discuss and determine credit rating results at CRC meetings.

4.        Keep all information related to CRC meetings and of any rating target confidential.

5.        Be aware of the prohibition of making use of confidential information to carry out any illegal and insider dealings.

6.        Disclose and avoid conflict of interest situations

7.      Should read with due care meeting papers and credit rating reports prior to CRC meetings.

8.        Exercise due diligence in carrying out  RC duties

CRC Meetings

1.        Mode of CRC meetings

a.       The quorum for CRC meetings, including the CRC Chairman, is more than half of the total number of CRC members.

b.      CRC meetings are convened at the office of CCXAP, but members may attend the meeting by way of telephone dial-in. At the start of a meeting, the CRC Chairman will remind members if there are any conflicts of interest situations that members need to disclose, and if so, they must leave the meeting room.

2.        Matters to be discussed at CRC meetings

a.    The respective key rating analyst presents the rated entity’s credit conditions, methodology adopted for the credit rating analysis, and the recommended rating results.

b.        Members of the relevant credit rating team and officers of CCXAP may attend CRC meetings as attendants.

c.        In case there are any disagreements or controversial points of view, sufficient time should be given for discussion.

3.        CRC voting mechanism

a.        Credit ratings will ultimately be determined by CRC members by way of voting.

b.    The CRC Secretary will record the votes cast and count the votes in front of CRC members.

c.        One CRC member is entitled to one vote only.

d.      The voting result is based on the simple majority rule. The final voting result of a credit rating will be announced by the CRC Chairman who will sign off the voting result paper. 

4.        Re-evaluation system

a.     If there are adequate materials or information that the rated entity considers may cause a change in the rating result before the public announcement, CRC members should allow the opportunity for the rated entity to submit supplementary information for re-evaluation.

b.     If a rated entity disagrees with its credit rating before the credit rating is publicly announced, it may submit to CCXAP management a written review request together with supplementary information within five working days from the date of the rating report.

c.     Upon receiving the rated entity’s request and supplementary information, CCXAP's analysts apply for rating appeals no later than three working days. If the supplementary information provided by the rated entity are not sufficient to change the rating result,  the project team should send notification to the rated entity that the rating appeals is not accepted.

d.     The CRC Chairman should convene a meeting as soon as possible to discuss whether CRC members should meet to consider changing the credit rating result.

e.      A credit rating re-evaluating meeting may decide that the original rating result should remained the same or be changed.

f.     Filing of the credit rating documents will be done within one month after public announcement of the credit rating results. 

Conflict Avoidance System

The Conflicts Avoidance System is established to prevent any conflict of interest that may arise before or during the rating process. The system ensures that CCXAP’s credit rating is operated with due care under the principle of independence, objectivity, and fairness.

Measures for Conflict Avoidance

Before signing an engagement letter with a rated entity, CCXAP will check to see if any of the following conflict of interest situations may exist.

1.        When CCXAP and a rated entity are under common control.

2.        When CCXAP and a rated entity, have common shareholder(s) or director(s).

3.     When a rated entity or its ultimate holding company directly or indirectly owns CCXAP shares.

4.        When CCXAP or its holding company directly or indirectly owns more than 5% in the share capital of a rated entity.

5.    When CCXAP buys or sells shares of the rated entity within three months before the commencement of the rating service provided by CCXAP.

6.     When any of CCXAP’s directors or analysts holds any amount of the respective rated entity’s shares.

In the event that any of the foregoing disclosures or conflict avoidance situations exists, the relevant CCXAP directors and staff who are involved in the credit rating project should by their own initiative report to the Managing Director of such existence. As for those who are involved in a credit rating project as a Project Approver, Credit Rating Committee member, Responsible Officer or Compliance Officer, it is their responsibility to report to the Managing Director on the existence of any situations requiring disclosure or avoidance.

If there is any conflict of interest existing and cannot be avoided, CCXAP should decline the engagement request. And at the time during a credit rating engagement, if a conflict of interest situation arises with the rated entity, CCXAP should immediately halt the rating work, explain to the rated entity, take remedial actions and, depending on the circumstances, may terminate or suspend the rating engagement.

Staff Conflict Avoidance Management Measures

Under this context, staff refers to any rating analyst and the Rating Director. Should any conflict of situation occur, the relevant staff should report to the Managing director of such situation and for the Credit Rating Committee (CRC) members, disclose it to the CRC Chairman prior to the upcoming CRC meeting or at the CRC meeting.

When assigned to a credit rating project, the relevant credit rating analyst is required to report to the Managing Director should there exist any potential conflict of interest. The Managing Director together with the Rating Director will form an opinion as to whether the analyst is suitable to be involved or continue to be involved in the rating project.

All CRC members and CCXAP staff are required to report to the Managing Director should any of the following conflict of interest situations arise:

1.     Holds shares in the rated entity or its ultimate holding company when rating of the rated entity is under way.

2.      If a staff or a CRC member is the managing director, supervisor, responsible person, auditor, legal counsel, financial consultant or financial services provider of the rated entity.