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Sebi tightens disclosure norms for credit rating agencies

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The Securities and Exchange Board of India (Sebi) on Tuesday tightened rules for credit rating agencies, prescribing more disclosures on suspension and withdrawal of ratings.
The capital markets regulator also directed agencies to disclose the nature of their compensation arrangements with rated entities, including exchange of gifts.
CRISIL, ICRA and CARE are the major agencies that assign credit ratings to issuers of debt instruments. The Sebi move follows an increase in the number of defaults due to adeteriorating corporate debt profile.
“Each rating agency shall frame detailed rating criteria, include the same in its operations manual or internal governing document, and disclose the same on its website,” Sebi said in a circular on Tuesday.
Rating agencies have to frame criteria on default recognition and the postdefault curing period. “Each criteria shall be reviewed periodically by the agency and the periodicity for such review shall be disclosed on the agency’s website,” Sebi noted.
Sebi wants to specify the rating process, including the nature of compensation arrangements with rated entities, the policy for appeal by issuers, the confidentiality policy and the policy on outsourcing of activities and on managing conflict of interest.
Any conflict of interest owing to the composition of members in the ratings committee must be reported during an internal audit of the agencies.
Besides, agencies have also been asked to lay out the role and responsibilities of analysts. “Analysts shall be responsible for undertaking the rating process and adhering to the timelines as specified in the operations manual or internal governing document,” Sebi said.
Business Standard New Delhi,02th November 2016

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