Table of Contents
- General Obligations of Credit Rating Agencies
- 1. Code of Conduct
- 2. Agreement with the client
- 3. Monitoring of ratings
- 4. Review of rating
- 5. Disclosure of rating definitions and rationale
- 6. Information to the SEBI
- 7. Compliance with circulars issued by the SEBI
- 8. Appointment of compliance officer
- 9. Maintenance of accounts and records
- 10. Rating Process
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General Obligations of Credit Rating Agencies
The General Obligations of credit rating agency are given below:
1. Code of Conduct
A credit rating agency should
1. Make all efforts to protect the interests of investors.
2. Observe high standard of integrity, dignity and fairness in the conduct of its business.
3. Fulfill its obligations in a prompt, ethical and professional manner.
4. Exercise due diligence and independent professional judgement in order to maintain objectivity and independence in the rating process.
5. Perform rating evaluations on a reasonable and adequate basis.
6. Follow a rating process that reflects consistent and international standards.
7. Not indulge in any unfair competition.
8. Keep track of all important changes relating to the client companies.
9. Disclose its rating methodology to clients, users and public.
10. Disclose to the clients possible sources of conflict of duties and interests which could impair its ability to make fair, objective and unbiased ratings.
11. Not to make any exaggerated statement to the client about its qualification or its capability to render certain services.
12. Not to make any untrue statement and suppress any material fact.
13. Inform SEBI about any action, legal proceedings and so on.
14. Abide by the provisions of SEBI Act.
15. Not to misuse any privileged information.
16. Inform the clients about any action taken by SEBI which may adversely affect the interest of clients.
17. Maintain an arm’s length relationship between its credit rating activity and any other activity.
18. Develop its own interval code of conduct for governing its internal operations.
19. Provide adequate freedom and powers to its compliance officer.
20. Ensure that good corporate policies and governance are in place.
2. Agreement with the client
The credit rating agency should enter into agreement with each client containing the following.
1. rights and liabilities of each party in respect of the rating of securities.
2. fee to be charged.
3. a periodic review of the rating during the tenure of rated instruments.
4. disclosure by the credit rating agency to the client regarding the rating assigned to its securities through regular methods of dissemination.
5. client’s agreement to disclose in the offer document the rating assigned to its listed securities during the last three years and any rating that has not been accepted by it and
6. clients agreement to obtain a rating from at least two different credit rating agencies for any issue of debt securities for Rs. 100 crores or more.
3. Monitoring of ratings
The credit rating agency should continuously monitor the ratings of securities rated by it during their life time.
Information regarding newly assigned ratings and changes in the earlier ratings should be promptly disclosed. In respect of securities issued by listed companies, such information should be furnished to all the stock exchanges where the securities are listed.
4. Review of rating
The credit rating agency should periodically review all published ratings during the life time of the securities.
5. Disclosure of rating definitions and rationale
The credit rating agency should
1. make public the definitions of the concerned rating, along with the symbol and
2. state that the ratings that do not constitute recommendations to buy, hold or sell any securities.
It should provide the general public with in formation relating to the rationale of the rating. It should cover an analysis of the various factors justifying a favorable assessment as well as the factors constituting a risk.
6. Information to the SEBI
The credit rating agency should furnish information to the SEBI as and when it is called for At the close of the each accounting period, SEBI should be furnished with copies of balance sheet and profit and loss account.
7. Compliance with circulars issued by the SEBI
The credit rating agency should comply with the SEBI guidelines, directions, circulars and instructions issued from time to time.
8. Appointment of compliance officer
The credit rating agency should appoint a compliance officer to monitor compliance with the provisions of SEBI Act and the circulars issued under it and by the Government.
9. Maintenance of accounts and records
The following books and records should be maintained by the credit rating agency for a minimum period of five years.
1. A copy of its balance sheet at the end of each accounting period.
2. A copy of its profit and loss account for each accounting period.
3. A copy of the auditor’s report on its accounts for each accounting period
4. A copy of the agreement entered into with each client
5. Information furnished by each of the client
6. Correspondence with each client
7. Ratings assigned to various securities
8. Rating notes considered by the rating committee.
9. Record of decisions of the rating committee
10. Letter assigning rating
11. Fees charged for rating and such other records as the SEBI may specify from time to time.
10. Rating Process
The Credit rating agency should
1. Specify the rating process, file a copy of the same with the SEBI for record
2. Have a professional rating committee comprising members who are adequately qualified and knowledgeable, to assign a rating.
3. Be satisfied by analysts qualified to carry out a rating assignment.
4. Inform the SEBI about new rating instruments or symbols introduced by it.
5. Exercise due diligence in order to ensure that the rating given is fair and appropriate.
6. Not to rate securities issued by it
7. Not to change rating definition without prior information to the SEBI.
8. Disclose to the stock exchange concerned, the rating assigned to the securities of a client including changes in rating.
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