SEBI tightens disclosure rules for rating agencies after IL&FS case, debt defaults; here are new guidelines

Amid ongoing trouble around IL&FS and debt defaults, SEBI Thursday issued new disclosure framework for credit rating agencies (CRAs).

The 14 individuals were fined Rs 3 lakh each, totalling Rs 42 lakh, according to a Sebi order.

Amid ongoing trouble around IL&FS and debt defaults, SEBI Thursday issued new disclosure framework for credit rating agencies (CRAs). The agencies would be required to provide the probability of default for various rated instruments. It comes amid surging cases of debt defaults and concerns around the role of these agencies in timely evaluation of the possible risks. In the IL&FS case, credit rating agencies have come under the scanner. The markets watchdog has called for having a uniform Standard Operating Procedure (SOP) in respect of monitoring and timely recognition of default as a part of guidelines for increasing disclosures. This has to be disclosed on the website of each agency. Also, the CRAs would have to put in place Probability of Default (PD) benchmarks.

“In order to enable investors to discern the performance of a CRA vis-a-vis a standardised PD benchmark scale, CRAs, in consultation with Sebi, shall prepare and disclose standardized and uniform PD benchmarks for each rating category on their website, for one-year, two-year and three-year cumulative default rates, both for short-run and long-run,” the circular said.

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The rating agencies have also been asked by the markets regulator to disclose the standardised and uniform PD benchmarks on the website for ratings of  long-term and short-term instruments on a consolidated basis for all financial instruments rated by an agency by December 31, 2019.

The companies have “miserably failed” to fulfil their duties as auditors for IL&FS Financial Services (IFIN), the global news agency Reuters reported citing the ministry of corporate affairs as saying to a company tribunal.  The government is seeking a five year ban on Deloitte Haskins Sells and KPMG affiliate BSR & Associates, alleging audit lapses of a unit of IL&FS.

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