SECURITIES AND EXCHANGE BOARD OF INDIA
NOTIFICATION

Mumbai, the 30th May, 2018

SECURITIES AND EXCHANGE BOARD OF INDIA (CREDIT RATING AGENCIES) (AMENDMENT) REGULATIONS, 2018

No. SEBI/LAD-NRO/GN/2018-15.—In exercise of the powers conferred by section 30 read with section 11 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following Regulations to further amend the Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999, namely:-

1. These Regulations may be called the Securities and Exchange Board of India (Credit Rating Agencies) (Amendment) Regulations, 2018.

2. They shall come into force on the date of their publication in the Official Gazette.

3. In the Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999,

i. in regulation 4, clause (d) shall be substituted with the following, namely: –

“(d) a foreign credit rating agency incorporated in a Financial Action Task Force (FATF) member jurisdiction and recognised under their law, having a minimum of five years’ experience in rating securities;”

ii. in regulation 5, –

a. clause (c) shall be substituted with the following, namely: – “(c) the applicant has a minimum net worth of rupees twenty five crore.”

b. after clause (k), the following clause shall be inserted, namely –

“(l) the promoter of the credit rating agency, in terms of regulation 4, has a minimum shareholding of 26% in the credit rating agency.”

iii. in regulation 9, after clause (c), the following clauses shall be inserted, namely –

“(d) the credit rating agency shall at all times maintain a minimum net worth of rupees twenty five crore.

Provided that a credit rating agency already registered with the Board under Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999, having a net worth less than rupees twenty five crores, shall, increase its net worth to the specified amount within a period of three years from the date of notification of the Securities and Exchange Board of India (Credit Rating Agencies) (Amendment) Regulations, 2018.

(e) the promoter of the credit rating agency, in terms of regulation 4, shall maintain a minimum shareholding of 26% in the credit rating agency for a minimum period of three years from the date of grant of registration by the Board.

Provided that this clause shall not be applicable to a credit rating agency already registered with the Board under Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999, at the commencement of Securities and Exchange Board of India (Credit Rating Agencies)(Amendment) Regulations, 2018.

(f) a credit rating agency shall not carry out any activity other than the rating of securities offered by way of public or rights issue.

Provided that nothing in these regulations shall prohibit a credit rating agency from engaging in any other activity in so far as it may be required by a financial sector regulator as defined under section 3(18) of the Insolvency and Bankruptcy Code, 2016.

Provided further that if a credit rating agency is carrying out activities other than the activity required by a financial sector regulator, such activity shall be segregated to a separate entity within a period of two years from the date of notification of Securities and Exchange Board of India (Credit Rating Agencies)(Amendment) Regulations, 2018.”

iv. in regulation 15, sub-regulation (1) shall be substituted by the following, namely-

“(1) Every credit rating agency shall, during the lifetime of securities rated by it continuously monitor the rating of such securities, unless the rating is withdrawn, subject to the provisions of regulation 16(3).”

v. in regulation 16, –

a. sub-regulation (1) shall be substituted by the following, namely-

“(1) Every credit rating agency shall carry out periodic reviews of all published ratings during the lifetime of the securities, unless the rating is withdrawn, subject to the provisions of regulation 16(3).”

b. sub-regulation (2) shall be substituted by the following, namely-

“(2) If the client does not co-operate with the credit rating agency so as to enable the credit rating agency to comply with its obligations under regulation 15 of these regulations, the credit rating agency shall carry out the review on the basis of the best available information or in the manner as specified by the Board from time to time.

Provided that if owing to such lack of co-operation, a rating has been based on the best available information, the credit rating agency shall disclose to the investors the fact that the rating is so based.”

c. sub-regulation (3) shall be substituted by the following, namely-

“(3) A credit rating agency shall not withdraw a rating so long as the obligations under the security rated by it are outstanding, except where the company whose security is rated is wound up or merged or amalgamated with another company or as may be specified by the Board from time to time”

vi. after regulation 24, the following regulation shall be inserted, namely –

Shareholding in a credit rating agency

24A. (1) A credit rating agency shall not:

(a) directly or indirectly, hold 10 per cent or more shareholding and/ or voting rights in any other credit rating agency, or

(b) have representation on the Board of any other credit rating agency.

Provided that a credit rating agency may, with the prior approval of the Board, acquire shares and/ or voting rights exceeding 10 per cent in any other credit rating agency only if such acquisition results in change in control in the credit rating agency whose shares are being acquired. On the basis of the prior approval sought by the acquirer, the Board may approve the acquisition in the interest of investors, market integrity and stability.

(2) A shareholder holding 10 per cent or more shares and/ or voting rights in a credit rating agency shall not hold 10 per cent or more shares and/ or voting rights, directly or indirectly, in any other credit rating agency.

Provided that the said restriction shall not apply to holdings by Pension Funds, Insurance Schemes and Mutual Fund Schemes.

Explanation: For the purpose of this regulation, a “credit rating agency” means a credit rating agency registered with the Board.

AJAY TYAGI, CHAIRMAN

[ADVT.—III/4/Exty./77/183]

Footnotes:

1. The principal regulations, SEBI (Credit Rating Agencies) Regulations, 1999 were issued under S.O. No. 547 (E) dated July 7, 1999 published in the Gazette of India.

2. SEBI (Credit Rating Agencies) Regulations, 1999 were subsequently amended on-

(a) March 28, 2000 by the SEBI (Appeal to Securities Appellate Tribunal) (Amendment) Regulations, 2000 published in Official Gazette vide S.O. No. 278(E).

(b) May 29, 2001, by the SEBI (Investment Advice by Intermediaries) (Amendment) (Regulations), 2001 vide S.O. No. 476 (E).

(c) September 27, 2002 by the SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 vide No. S.O. No.1045 (E).

(d) February 19, 2003 by SEBI (Credit Rating Agencies) (Amendment) Regulations, 2003 vide S.O. No. 203 (E).

(e) October 1, 2003 by the SEBI (Credit Rating Agencies) (Second Amendment) Regulations, 2003 vide S.O. No. 1160 (E).

(f) March 10, 2004 by SEBI (Criteria for Fit and Proper Person) Regulations, 2004 vide S. O. No. 398 (E).

(g) September 7, 2006 by the SEBI (Credit Rating Agencies) (Amendment) Regulations, 2006 vide S. O. No. 1454(E).

(h) May 26, 2008 by SEBI (Intermediaries) Regulations, 2008 vide No. LAD/NRO/GN/2008/11/126538.

(i) March 19, 2010 by the SEBI (Credit Rating Agencies) (Amendment) Regulations, 2010 vide Notification No. LAD-NRO/GN/2009-2010/30/199044.

(j) April 13, 2011 by the Securities and Exchange Board of India (Change in Conditions of Registration of Certain Intermediaries) (Amendment) Regulations, 2011 vide Notification No. LAD/ NRO/ GN/ 2011-12/03/12650.

(k) July 5, 2011 by the Securities and Exchange Board of India (Credit Rating Agencies) (Amendment) Regulations, 2011 vide Notification No. LAD/NRO/GN/2011-12/10/21232.

(l) December 27, 2011 by the Securities and Exchange Board of India (Credit Rating Agencies) (Second Amendment) Regulations, 2011 vide Notification No. LAD/NRO/GN/2011-12/31/39022.

(m) December 08, 2016 by the Securities and Exchange Board of India (Change in Conditions of Registration of Certain Intermediaries) (Amendment) Regulations, 2016 vide Notification No. SEBI/LAD/NRO/GN/2016-17/023.

(n) May 23, 2014 by the Securities and Exchange Board of India (Payment of Fees and Mode of Payment) (Amendment) Regulations, 2014 vide notification no. LAD-NRO/GN/2014-15/03/1089

(o) March 6, 2017 by the Securities and Exchange Board of India (Payment of Fees and Mode of Payment) (Amendment) Regulations, 2017 vide Notification No. LAD-NRO/GN/2016- 17/037 read with Notification No. LAD-NRO/GN/2016- 17/038 dated March 29, 2017.

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