Credit rating agencies (CRAs) in India are regulated by the Securities and Exchange Board of India (SEBI) under the SEBI (Credit Rating Agencies) Regulations, 1999. The regulations are designed to ensure that CRAs operate in a transparent, fair, and objective manner, and maintain high standards of professionalism and integrity.
Some of the key regulations for CRAs in India are as follows:
- Registration: Any CRA that wishes to operate in India must be registered with SEBI. The registration process includes a detailed application process, a review of the CRA’s internal controls, systems and processes, and a review of the qualifications and experience of the CRA’s key personnel.
- Disclosure requirements: CRAs are required to make various disclosures to the public, including their rating methodologies, fee structures, and any conflicts of interest that may exist.
- Code of conduct: SEBI has prescribed a code of conduct for CRAs that requires them to operate with integrity, objectivity, independence, and transparency. The code of conduct also requires CRAs to avoid any conflict of interest that may compromise their independence and objectivity.
- Rating process: SEBI has prescribed a detailed rating process that CRAs must follow while assigning ratings to companies and instruments. The rating process includes various steps, such as the collection and analysis of data, the application of rating methodologies, and the review of the rating by a rating committee.
- Rating symbols: SEBI has prescribed various rating symbols that CRAs must use while assigning ratings. The symbols range from AAA (indicating highest creditworthiness) to D (indicating default).
- Surveillance and review: CRAs are required to continuously monitor the companies and instruments that they have rated and to promptly alert investors in case of any changes in the creditworthiness of the companies or instruments.
- Audit requirements: CRAs are required to undergo periodic audits to ensure compliance with SEBI’s regulations and the CRA’s internal policies and procedures.
SEBI’s regulations for CRAs are designed to ensure that investors have access to high-quality and reliable credit ratings, and that CRAs operate with integrity, objectivity, and transparency.