Regulator asks rating agencies to set up review committees

The Securities and Exchange Board of India (Sebi) on Wednesday directed rating agencies to set up committees to hear the appeals of issuers aggrieved by the ratings assigned to them. Currently, there is no stipulated mechanism to review such issues.

“To ensure transparency and fairness, it has been decided that requests by issuers for review of the ratings will be reviewed by a rating committee that shall comprise a majority of independent members,” Sebi said.

The move follows hundreds of complaints filed by companies last year challenging the ratings assigned to their products. However, as there is no proper mechanism, issuers often move to another credit rating agency (CRA).

Sebi has issued a new framework for disclosures, which covers the process to be followed when the rating is not accepted by the issuer.

The regulator's announcement follows last year's consultation paper, issued in September last year. Sebi has said majority of members on the review committee should be independent.

“Independent will mean people not having any pecuniary relationship with the CRA or its employees,” Sebi said.

The regulator has directed rating agencies to disclose all non-accepted ratings on their website for 12 months. Under the modified disclosure requirement, the CRAs will have to disclose the list of defaulters on a half-yearly basis. Further, it has asked CRAs to conduct internal audit with a panel of at least one chartered accountant and a certified auditor.

Sebi has issued a framework for disclosures that covers the process to be followed when a rating is not accepted by the issuer