Sebi tightens disclosure norms for rating agencies

The Securities and Exchange Board of India (Sebi) has tightened rules for credit rating agencies (CRAs),  and has issued standardised guidelines, including rating criteria, method of public disclosures, internal functioning of rating committees to credit rating agencies.

The new guidelines which aims at greater disclosure and transparency in the relationship between a rating agency and the company raising debt, also disallows the suspension of ratings.

Each CRA will have to disclose on its website details of all the ratings it has assigned, irrespective of whether the rating was accepted by the issuer or not, even in case of non-public issues.

If the company stops co-operating with the CRA and does not provide information, the CRA must continue to publish a rating accompanied with the statement, ''Issuer did not co-operate; Based on best available information'' in the same font size. This means a CRA cannot suspend a rating based on a lack of information provided by the issuer.

Also, if a company, having not co-operated with a CRA in the past, approaches another CRA for a rating, the new CRA will have to disclose in its press release the aspect of non-co-operation in the past. This prevents ''rating shopping'' by an issuer, who could until now, pick from among ratings that suited it the most.

CRAs should, in their operational manual, prescribe obligations, responsibilities, guidelines for managing conflict of interest, eligibility, composition, system of voting, etc, of rating committee members as also roles, responsibilities and desired timelines for analysts.

Persons having business responsibility should not to be part of the rating committee. However, the MD and CEO may be a member of the rating committee if the majority of the rating committee members are independent.

Annual review by the rating committee should include rating action and outlook, details of the instrument, key rating drivers, rating history, reference to applicable criteria, contact details of rating analyst etc.

CRAs should detail the criteria used for rating various instruments and sectors and for default recognition, rating process and policies, any change in rating criteria, process and policies, all rating history, press releases and rating reports assigned by the CRA, including ratings withdrawn and those non- accepted by the issuer, even in case of non-public issues.

These should also include rating transition/ rating history of the issuer, details of all such ratings where the review became due but was not completed by the due date by the CRA.