Obligations on CRAs while undertaking rating of financial instruments falling under the purview of any other Financial Sector Regulator
Summary
This circular mandates specific compliance obligations for Credit Rating Agencies (CRAs) when rating financial instruments regulated by other Financial Sector Regulators. It requires distinct operational separations, including separate email IDs and website sections for grievances and disclosures between SEBI-regulated and other activities. Additionally, CRAs must ensure net worth requirements are additive, provide clear disclosures regarding the non-availability of SEBI investor protection mechanisms, and obtain client confirmations.
Text
CRA shall handle grievances related to SEBI regulated activities and grievances related to activities under the purview of other FSR(s) through distinct and separate email IDs. Further, CRAs shall maintain separate webpages or sections on their website for disclosures related to SEBI regulated activities and disclosures related to activities under the purview of other FSR(s).
While all resources, including manpower, information technology, etc., related to the investor grievance mechanism can be shared, the email IDs for receiving grievances for SEBI-regulated instruments/ activities and other activities shall be separate.
CRA shall ensure that the minimum net worth requirement of a CRA, specified under the CRA Regulations, shall not be impacted by the CRA’s undertaking rating of financial instruments falling under the purview of other FSR(s).
CRAs should ensure that the net worth stipulations, if any, by other FSR(s) shall be in addition to the minimum net worth requirement specified by SEBI.
The CRA shall duly disclose on its website the list of activities being carried out along with the name of the regulator for each activity.
CRA shall also ensure that its advertising or marketing material related to activities under the purview of other FSR(s) shall be separate and distinct from advertising or marketing material related to SEBI regulated activities.
Further, for all the activities under the purview of other FSR(s), the CRAs shall clearly disclose on its website, advertising or marketing material that the SEBI investor protection mechanisms and SEBI grievance/dispute redressal mechanisms will not be available for such activities.
The rating reports and press releases/rating rationales shall mention the name(s) of the regulator(s) for such instruments. Also, such rating reports and press releases/rating rationales shall clearly disclose that the SEBI investor protection mechanisms or SEBI grievance/dispute redressal mechanisms will not be available for such ratings.
In cases where CRA issues common rating report and press release/rating rationales, a clear segregation and labelling of SEBI regulated instruments and instruments falling under the regulatory purview of other FSR(s) shall be provided.
An upfront written disclosure is made to the clients informing them that such activity fall under the regulatory purview of other FSR(s). Further, the said disclosure shall also be included in the rating agreements/engagement letters between CRA and clients.
A written confirmation shall be obtained from the clients stating that the clients have understood the nature of the activity, risks involved and non-availability of any SEBI investor protection mechanisms or SEBI grievance/dispute redressal mechanisms for such activity.
For all the existing clients for ongoing activities and outstanding ratings falling under regulatory purview of other FSR(s) as on the date of coming into effect of these provisions, a written intimation shall be sent to clients by the CRA specifying the nature of the activity, risks involved and non-availability of any SEBI investor protection mechanisms or SEBI grievance/dispute redressal mechanisms for such activities.
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Source: SecMarx — Obligations on CRAs while undertaking rating of financial instruments falling under the purview of any other Financial Sector Regulator. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.