SEBI circular on Firewall between Credit Rating Agencies and their Affiliates – 21st September, 2022

SEBI vide its Circular dated 21^st September, 2022 mandated measures in order to strengthen the firewall between SEBI-registered CRAs and their non-rating entities.

1. SEBI (Credit Rating Agencies) Regulations, 1999 (“CRA Regulations”) provide for a principle-based regulation of Credit Rating Agencies (CRAs) focusing inter alia on prevention of conflict of interests. Regulation 13 of the CRA Regulations require CRAs to abide by the Code of Conduct contained in the Third Schedule.

1. Nature and extent of sharing of infrastructure, officials/employees or resources, if any, between the CRA and the non-rating entity, including specification on whether such arrangement is temporary.

1. Measures taken by CRA to ensure the independence of its credit rating process in view of the above arrangement with the non-rating entity.

1. Guidance to employees on sharing of information or resources, if any, between the CRA and the non-rating entity in order to mitigate any potential or actual conflict of interest.

• A CRA shall disclose on its website, details of any common director or Chief Executive Officer or Managing Director between the CRA and the non-rating entity. Such disclosure shall be updated by the CRA on the first working day of each month. The disclosure should include a reference to the date it was last updated by the CRA, along with a reference or hyperlink to archives of previous such disclosures.

• Credit rating scales (i.e., symbols and definitions) prescribed by SEBI vide its circulars dated June 15, 2011 (CIR/MIRSD/4/2011 dated June 15, 2011) or July 16, 2011 (SEBI/HO/MIRSD/MIRSD_CRADT/P/CIR/ 2021/594 dated July 16, 2021) or any other circular issued under the CRA Regulations, shall not be used by any non-rating entities of the CRA.

• The websites of SEBI-registered CRAs and their non-rating entities shall be separate. A CRA’s website may contain hyperlinks to the separate websites of the non-rating entities.

 Applicability: The circular shall be applicable with effect from January 1, 2023, and CRAs shall report on their compliance with this circular (as ratified by their respective board of directors) to SEBI within one quarter from the date of applicability of this circular.

Monitoring: Monitoring of this circular shall be done in terms of the half-yearly internal audit for CRAs, mandated under Regulation 22 of the SEBI (Credit Rating Agencies) Regulations, 1999 and Circular SEBI/ MIRSD/CRA/Cir-01/ 2010 dated January 06, 2010 issued thereunder.

Link to the Circular:

https://www.sebi.gov.in/legal/circulars/sep-2022/firewall-between-credit-rating-agencies-and-their-affiliates_63205.html