Sebi asks credit rating agencies to disclose issuer compensation

Written by Markets Bureau | Mumbai | Updated: May 5 2010, 04:16am hrs
Markets regulator Securities and Exchange Board of India (Sebi) has asked credit rating agencies (CRAs) to disclose the compensation from issuers and the methodology and procedures relating to both solicited and unsolicited credit ratings.

Sebi, in its release, stated CRAs must also maintain a summary of discussions with the issuer, its management, auditors and bankers which have a bearing on the credit rating. These records should be maintained for five years and be made available to auditors and regulatory bodies when sought by them, said Sebi.

Roopa Kudva, MD & CEO of Crisil, Limited said, We support the objectives of increasing transparency and accountability of CRAs. Crisil will comply with the additional disclosure requirements regarding rating histories and more detailed revenue break-ups within the timelines stipulated by Sebi. In order to promote transparency and to enable the market to best judge the performance of the ratings, the CRA, should publish information about the historical default rates of CRA rating categories and whether the default rates of these categories have changed over time.

Regarding the income of the CRAs, Sebi said they should reveal any conflict of interest, including the details of the relationship between the issuer whose securities are being rated and the CRA or its subsidiaries. CRAs should annually disclose their total receipt from rating services and non-rating services, issuer wise percentage share of non-rating income of the CRA and names of the rated issuers who along with their associates contribute 10% or more of total revenue of the CRA.

In case of unsolicited credit ratings, credit rating symbol shall be accompanied by the word unsolicited in the same font size. A CRA shall monitor and disclose credit rating during the life of the rated securities, as if it were a solicited rating. Sebi also said CRAs should ensure full compliance with the guidelines by June 30, 2010, and make mandatory disclosures twice annually.