A reliability rating is the Rating Agency’s opinion on sustainability of an entity’ business model, in its industry context. This actually differentiates a reliability rating from a credit rating. A reliability rating reflects the Rating Agency’s opinion on an entity’s ability to deliver its financial obligations to its customers, counterparties and creditors, as well as its opinion about the quality of an entity’s services and its risk management system.

NRA assigns its reliability ratings using a reliability rating scale.

Investment companies also get NRA’s national scale and global scale credit ratings.

NRA defines an IC as a company licensed in the Russian Federation to engage in stockbroker and/or dealer activities. An IC may have other licenses and conduct other activities, e.g., securities trust management or depository operations.

An assigned IC reliability rating remains in force for one year from the day on which it was issued and must be considered for revision at least once a year.

NRA uses several factors for calculating an IC reliability, such as financial performance indicators, information on company's business position (a qualitative issue), and company information available to the public. In addition, much attention is paid to the state of the industry to which a IC belongs, which requires special analytical emphasis.

‘Building blocks’ of an investment company analysis

• Financial analysis;
• Non-financial criteria evaluation;
• Market position evaluation;
• Level of information disclosure;
• Actual events that may have an effect on the company’s reputation risk;
• Comparative analysis-based evaluation.

The above ‘building blocks’ of an IC analysis are assigned different weights depending on their ability to impact the IC’s credit profile.

Financial analysis (45% contribution to the total score)

An IC financial analysis coves the following aspects:

• Assets, in absolute terms;
• Asset dynamics;
• Capital base, in absolute terms;
• Capital dynamics;
• Capital adequacy [capital to risk (weighted) assets ratio];
• Level of investment in related entities;
• Net profit trend;
• ROE;
• Financial performance volatility;
• Financial investment to total assets;
• Level of asset immobilization;
• ROA;
• Current liquidity ratio;
• Asset liquidity;
• Audit quality;
• Availability, timeliness and completeness of IFRS financials.

Non-financial criteria evaluation (25% contribution to the total score)

Issues to be reviewed include:

• Owners’ reputation and influence on the company’s development;
• Number of years worked in the market;
• Availability of a medium-term (1 to 3 years) strategy;
• Consistency of actual actions and achievements with strategic targets;
• Quality of corporate governance practices;
• Extent of the Enterprise Risk Management (ERM) system implementation.

Market position evaluation (30% contribution to the total score)

Issues to be reviewed include:

• Position in the ranking of ICs in terms of total business turnover;
• Position in the ranking of lead managers and underwriters;
• Position in the ranking of investment advisors;
• Total number of transactions closed by given IC;
• Income base diversification;
• Geographic diversification;
• Customer base diversification;
• Exchange trade turnover dynamics;
• Company’s key stock exchange trading platforms.

Comparative analysis-based evaluation (±5% contribution to the total score)

• Asset dynamics;
• Capital dynamics;
• Exchange trade turnover dynamics.

NRA’s analytical process includes a review of a company’s transparency, as well as the completeness and accuracy of information provided to NRA. IC’s inadequate transparency, inappropriate or out-of-date information may result in a lower rating than otherwise would be the case.

We also examine actual events that may have an effect on the company’s reputation risk. These may include the following:

• Failure to comply with the laws or internal rules, regulations or codes of behavior;
• Inaccuracy of reporting information;
• Concealment of information that has to be disclosed;
• Participation in suspicious trading activity;
• Underestimation of risks or pursuance of risky policies;
• Conflict of interest or incorrect information disclosure;
• Extrajudicial or judicial conflicts and disputes relating to corporate governance;
• Claims or penalties imposed against the company by the authorities;
• Negative media coverage.

When determining the final rating, the Agency may also consider the following factors:

1) Favorable or adverse changes in the external environment (political, macroeconomic, market risks, competitive environment, legal risks), including:

- for accounting of cyclic recurrence in the industry;

- in the case of sudden changes in monetary / currency / financial market variables (exchange rates, interest rates, prices for goods and raw materials);

- in the case of influence of regional political risks / authorities on the company's activities.

2) The apparent deviation (lead or lag) of the company compared with its competitors; unaccounted difference in indicators of the company and its competitors, accounting of the benefits of a monopoly position, restrictions on competition or risks associated with barriers to entry.

3) Improper quality, unconfirmed by documents or inadequate valuation of assets and investments in the preparation of financial statements, which complicates the analysis of financial results and requires additional expert assessment.

4) A significant change in the indicators described above as criteria for the rating model, which occurred after the reporting date and were not (can not or should not be at the moment) taken into account in the current model, but will have an undoubted impact on it later.

5) 100% ownership, tight business integration, low autonomy and independence of subsidiaries from the parent company, if the risks of a third company fully determine risks of the analyzed investment company.