Sebi allows rating agencies to undertake research activities related to their work

Markets regulator Sebi Wednesday allowed credit rating agencies to undertake research activities related to their work.

Earlier, a Credit Rating Agency (CRA) was only allowed to undertake the rating of financial instruments under the guidelines prescribed by the financial sector regulators.

"CRAs may also undertake research activities, incidental to rating, such as research for economy, industries and companies," the Securities and Exchange Board of India (Sebi) said in a circular.

Besides, changes have been made to norms related to reviewing of ratings on request of the issuers.

The cases of requests by the issuer for reviewing the ratings are to be analysed by a committee of the CRA. Now, that panel would have majority of members who were not involved in assigning the earlier ratings.

Also, the rating committee of the CRA should have at least one-third of independent members.

Earlier, all cases of requests by issuers for review of the ratings had to be reviewed by a rating committee of the CRA having a majority of independent members.

The modifications have been done following representations from market participants and discussions with CRAs.

"... cases of requests by an issuer for review of the rating(s) provided to its instrument(s) shall be reviewed by a rating committee of the CRA that shall consist of majority of members that are different from those in the rating committee of the CRA that assigned the earlier rating, and at least one-third of members are independent," Sebi said.

The regulator has defined "independent" members as those people that have no pecuniary relationship with the CRA or any of its employees.