The depositories reliability rating is individual and is assigned under the contract with a company that wishes to undergo the rating procedure.
Reliability rating is the Agency's opinion on the stability of a company's business model and market position of a company within a single industry, as well as the quality of services and the current system of risk management.
The Agency understands a 'depository' as a company that has the License of a Professional Participant of the Securities Market, issued in the Russian Federation, for providing depository and specialized depository services. These activities may be partly combined with other types of professional activity on the securities market.
Rating score is multifactorial. When assessing the reliability of a company, NRA uses financial indicators, qualitative assessment of information on a company's business, as well as open access information about a company. Along with this, a lot of attention is paid to the state of the industry in which a company operates; an analytical report on the segment is made.
This rating model analyzes the financial condition, operations (business) of a company, and non-financial information. In contrast to the rating model for evaluating the creditworthiness of depositories, qualitative indicators, including those reflecting the company's position in the industry, have greater weight in the reliability assessment model.
The depositories reliability rating model consists of two key sets:
- Financial analysis set
- Qualitative analysis and general information set
The sets have different 'weight' depending on importance and level of influence on reliability of a depository.
1. Financial analysis set (weight in the model – 45%)
The following indicators are estimated in the process of financial analysis of a depository's performance:
- Dynamics of the customer base
- The amount and dynamics of capital
- The ratio of coverage of the property value by own funds and insurance
- Revenue (structure, amount, dynamics)
- Income and profitability
- Diversification of sources of income
- Diversification of the customer base
- Level of expenses and operational efficiency
2. Qualitative analysis and general information set (weight in the model – 55%)
Qualitative analysis set includes assessment of the following parameters:
- Shareholders and owners of a company, their influence on a depository's business development
- Years of operation and history of a company
- Development strategy of a company
- Organization of internal accounting system and technical equipment
- Management team of a company (professionalism) and management structure
- Spectrum of licensing services and diversification of the product line
- The total number of clients
When assigning the rating, the Agency takes into account the level of information transparency of a company, completeness and accuracy of the provided information. Low information transparency, unreliable or irrelevant information, provided to the Agency, may reduce the rating score.
In addition, NRA estimates realization of events affecting the level of reputational risk. The factors that may lead to realization of reputational risk are:
- Failure to comply with the laws, by-laws, principles of professional ethics
- Requirements by the regulatory and supervisory authorities
- Claims from the state authorities and fines
- Participation in illegal activities
- Negative events affecting the company’s reputation
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 (when a phase of the economic cycle in the industry is not adequately reflected in the rating model);
- in the case of sudden changes in monetary / currency / financial market variables (exchange rates, interest rates, prices for financial assets);
- in the case of influence of regional political risks / authorities on the company's activities.
2) The apparent deviation (lead or lag) of the depository 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 and calculation of depository’s equity, 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, low level of diversification of assets of the holding/parent company, if the risks of a third company fully determine risks of the analyzed depository.