As part of its attempts to enhance the governance norms for credit rating agencies, the Securities and Exchange Board of India (SEBI) has said that the chief executive officer of a rating firm cannot be a member of the rating committee and such committees will directly report to the chief rating officer.
In a circular issued on Monday, the capital markets regulator also said that independent directors should constitute one-third of the board of the rating agency.
“One third of the board of a CRA shall comprise independent directors, if the board is chaired by a non-executive director. In case the board of the CRA is chaired by an executive director, half of the board shall comprise independent directors,” stated the SEBI circular.
SEBI has further said that the board of a CRA will have to constitute ratings sub-committee, nomination and remuneration committee and the chief ratings officer will directly report to the ratings sub-committee of the board.
The nomination and remuneration committee will be chaired by an independent director, as per the SEBI circular.
Meanwhile, the CRAs have been mandated to record the minutes of the meeting with issuer management during the rating process and incorporate it in the rating committee note.
“CRAs shall meet the audit committee of the rated entity, at least once in a year, to discuss issues including related party transactions, internal financial control and other material disclosures made by the management, which have a bearing on rating of the listed NCDs,” the SEBI circular said.
