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SECURITIES AND
EXCHANGE BOARD OF (CREDIT RATING
AGENCIES) REGULATIONS, 1999 CONTENTS CHAPTER I:
PRELIMINARY 1. Short
title and commencement 2.
Definitions CHAPTER II:
REGISTRATION OF CREDIT RATING AGENCIES 3.
Application for grant of certificate 4. Promoter
of credit rating agency 5.
Eligibility criteria 5A
Applicability of SEBI (Criteria for Fit and Proper Person) Regulations, 2004 6.
Application to conform to the requirements 7. Furnishing
of information, clarification and personal representation 8. Grant of
Certificate 9.
Conditions of certificate and validity period 10. Renewal
of certificate 11.
Procedure where certificate is not granted 12. Effect
of refusal to grant certificate CHAPTER –
III: GENERAL OBLIGATIONS OF CREDIT RATING AGENCIES 13. Code of
Conduct 14.
Agreement with the client 15.
Monitoring of ratings 16.
Procedure for review of rating 17.
Internal procedures to be framed 18.
Disclosure of Rating Definitions and Rationale 19.
Submission of information to the Board 20.
Compliance with circulars etc., issued by the Board 20A.
Appointment of Compliance Officer 21.
Maintenance of Books of Accounts records, etc. 22. Steps
on auditor’s report 23.
Confidentiality 24. Rating
process CHAPTER -
IV: RESTRICTION ON RATING OF SECURITIES ISSUED BY PROMOTERS OR BY CERTAIN OTHER
PERSONS 25.
Definitions 26.
Securities issued by promoter 27. Securities issued by certain
entities, connected with a promoter, or rating agency not to be rated 28.
Securities already rated CHAPTER –
V: PROCEDURE FOR INSPECTION AND INVESTIGATION 29. Board’s
right to inspect 30. Notice
before inspection or investigation 31.
Obligations of credit rating agency on inspection or investigation by the Board
32.
Submission of report to the Board 33. Action
on inspection or investigation report CHAPTER VI:
PROCEDURE FOR ACTION IN CASE OF DEFAULT 34.
Liability for action in case of default FIRST
SCHEDULE: FORMS FORM A:
APPLICATION FOR GRANT OF CERTIFICATE / RENEWAL OF CERTIFICATE FORM B:
CERTIFICATE OF REGISTRATION SECOND
SCHEDULE: FEES THIRD
SCHEDULE: CODE OF CONDUCT THE GAZETTE OF SECURITIES AND EXCHANGE BOARD OF S.O. 547(E) – 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 Securities and Exchange Board of India hereby
makes the following regulations,
namely:- 1. (1) These regulations
may be called the Securities and Exchange Board of India (Credit Rating
Agencies) Regulations, 1999. (2) They shall come into
force on the date of their publication in the Official Gazette. 2 (1) In these regulations,
unless the context otherwise requires, - (a)
"Act" means the Securities and Exchange Board of India Act, 1992 (15
of 1992); (b) "associate",
in relation to a credit rating agency, includes a person – (i) who, directly or indirectly, by himself, or in
combination with relatives, owns or controls shares carrying not less than ten
percent of the voting rights of the credit rating agency, or (ii) in respect of whom the
credit rating agency, directly or indirectly, by itself, or in combination with
other persons, owns or controls shares carrying not less than ten percent of
the voting rights, or (iii) majority of the
directors of which, own or control shares carrying not less than ten percent of
the voting rights of the credit rating agency, or (iv) whose director,
officer or employee is also a director, officer or employee of the credit
rating agency; (c) "Board"
means the Board as defined in clause (a) of sub-section (1) of section 2 of the
Act; (d) "body
corporate" means a body corporate as defined in clause (7) of section 2 of
the Companies Act, 1956 (1 of 1956); (e) "certificate"
means a certificate of registration granted or renewed by the Board under these
regulations; (f) "client"
means any person whose securities are rated by a credit rating agency; (g) "company"
means a company incorporated under the Companies Act, 1956 (1 of 1956); (h) "credit rating
agency" means a body corporate which is engaged in, or proposes to be
engaged in, the business of rating of securities offered by way of public or
rights issue; (i)
"economic offence" means an offence to which the Economic Offences
(Inapplicability of Limitation) Act, 1974 (12 of 1974), is applicable for the
time being; [1](j) *** (k) "form" means
any of the forms specified in the First Schedule: (l) "fraud" has
the same meaning as is assigned to it by section 17 of the Indian Contract Act,
1872 (9 of 1872); (m) "group
companies" means group companies as defined in the Monopolies and
Restrictive Trade Practices Act, 1969 (54 of 1969); (n) "inspecting
officer" means any one or more persons appointed by the Board under reregulation
29: (o) "issuer"
means a person whose securities are proposed to be rated by a credit rating
agency; (p) "net-worth"
means the aggregate value of the paid up equity capital and free reserves
(excluding reserves created out of revaluation), reduced by the aggregate value
of accumulated losses and deferred expenditure not written off, including
miscellaneous expenses not written of; (q) "rating"
means an opinion regarding securities, expressed in the form of standard symbols
or in any other standardised manner, assigned by a
credit rating agency and used by the issuer of such securities, to comply with
a requirement specified by these regulations; (r) "rating
committee" means a committee constituted by a credit rating agency to
assign rating to a security; (s) "regulation"
means a regulation forming part of these regulations; (t) "relative"
means a relative as defined in section 6 of the Companies Act, 1956 (1 of
1956); (u) "schedule"
means any of the schedules appended to these regulations; and (v) "securities"
has the meaning assigned to it in clause (h) of section 2 of the Securities
Contracts (Regulation) Act, 1956. (2) Words
and expressions used and not defined in these regulations, but defined in the
Act, shall have the meanings respectively assigned to them in the Act. CHAPTER II Application
for grant of certificate 3. (1) Any person proposing
to commence any activity as a credit rating agency on or after the date of commencement
of these regulations shall make an application to the Board for the grant of a
certificate of registration for the purpose. (2)
Any person, who was immediately before the said date carrying on any activity
as a credit rating agency, shall make an application to the Board for the grant
of a certificate within a period of three months from such date: Provided
that the Board may, where it is of the opinion that it is necessary to do so,
for reasons to be recorded in writing, extend the said period upto a maximum of six months form such date. (3)
An application for the grant of a certificate under sub-regulation(1) or sub-regulation(2)
shall be made to the Board in Form A of the First Schedule and shall be
accompanied by a non–refundable application fee, as specified in Form A of the
second Schedule, to be paid in the manner specified in Part B thereof. (4) Any person referred to
in sub-regulation (2) who fails to make an application for the grant of a
certificate within the period specified in that sub-regulation shall cease to
carry on rating activity. Promoter
of credit rating agency 4.
The Board shall not consider an application under regulation (3) unless the
applicant is promoted by a person belonging to any of the following categories,
namely: (a) a public financial institution, as defined in section 4
A of the Companies Act, 1956 (1 of 1956); (b)
a scheduled commercial bank included for the time being in the second schedule
to the Reserve Bank of India Act, 1934 (2 of 1934); (c) a foreign bank
operating in (d)
a foreign credit rating agency recognised by or under
any law for the time being in force in the country of its incorporation, having
at least five years experience in rating securities; (e) any company or a body corporate, having
continuous net worth of minimum rupees one hundred crores
as per its audited annual accounts for the previous five years prior to filing
of the application with the Board for the grant of certificate under these
regulations. 5. The Board shall not
consider an application for the grant of a certificate under regulation 3,
unless the applicant satisfies the following conditions, namely: (a) the
applicant is set up and registered as a company under the Companies Act, 1956; (b) the applicant has, in
its Memorandum of Association, specified rating activity as one of its main
objects; (c)
the applicant has a minimum net worth of rupees five crores. Provided that a credit rating agency existing at the
commencement of these regulations, with a net worth of less than rupees five crores, shall be deemed to have satisfied this condition,
if it increases its net worth to the said minimum within a period of three
years of such commencement. (d) the applicant has adequate infrastructure, to enable it
to provide rating services in accordance with the provisions of the Act and
these regulations; (e)
the applicant and the promoters of the applicant, referred to in regulation 4
have professional competence, financial soundness and general reputation of
fairness and integrity in business transactions, to the satisfaction of the
Board; (f)
neither the applicant, nor its promoter, nor any director of the applicant or
its promoter, is involved in any legal proceeding connected with the securities
market, which may have an adverse impact on the interests of the investors; (g)
neither the applicant, nor its promoters, nor any director, of its promoter has
at any time in the past been convicted of any offence involving moral turpitude
or any economic offence; (h)
the applicant has, in its employment, persons having adequate professional and
other relevant experience to the satisfaction of the Board; (i) neither the applicant, nor any person directly or
indirectly connected with the applicant has in the past been – (i) refused by the Board a certificate under these
regulations or (ii)
subjected to any proceedings for a contravention of the Act or of any rules or
regulations made under the Act. Explanation:
For the purpose of this clause, the expression "directly or indirectly
connected person" means any person who is an associate, subsidiary,
inter-connected or group company of the applicant or a company under the same
management as the applicant. (j) the
applicant, in all other respects, is a fit and proper person for the grant of a
certificate; (k)
grant of certificate to the applicant is in the interest of investors and the
securities market. [2]Applicability of Securities and
Exchange Board of 5A. The provisions of the
Securities and Exchange Board of India (Criteria for Fit and Proper Person)
Regulations, 2004 shall, as far as may be, apply to all applicants or the
credit rating agencies under these regulations. Application to conform to the requirements 6. Any application for a
certificate, which is not complete in all respects or does not conform to the
requirement of regulation 5 or instructions specified in Form A shall be
rejected by the Board: Provided
that, before rejecting any such application, the applicant shall be given an
opportunity to remove, within thirty days of the date of receipt of relevant
communication, from the Board such objections as may be indicated by the Board.
Provided
further, that the Board may, on sufficient reason being shown, extend the time
for removal of objections by such further time, not exceeding thirty days, as
the Board may consider fit to enable the applicant to remove such objections. Furnishing
of information, clarification and personal representation 7.
(1) The Board may require the applicant to furnish such further information or
clarification as the Board may consider necessary, for the purpose of
processing of the application. (2) The Board, if it so desires, may ask the
applicant or its authorised representative to appear
before the Board, for personal representation in connection with the grant of a
certificate. 8.
(1) The Board, on being satisfied that the applicant is eligible for the grant
of a certificate of registration, shall grant a certificate in Form ‘B’. (2) The grant of certificate of registration shall be
subject to the payment of the registration fee specified in Part A of the
Second Schedule, , in the manner prescribed in Part B thereof. Conditions
of certificate and validity period 9.
(1) The certificate granted under regulation 8 shall be, subject to the
following conditions, namely: (a) the credit rating agency shall comply with the
provisions of the Act, the regulations made there under and the guidelines,
directives, circulars and instructions issued by the Board from time to time on
the subject of credit rating. (b)
(1) where any information or particulars furnished to the Board by a credit rating
agency: (i) is found to be false or misleading in any material
particular ; or (ii)
has undergone change subsequently to its furnishing at the time of the
application for a certificate; the credit
rating agency shall forthwith inform the Board in writing. (2)
the period of validity of certificate of registration shall be three years. 10.
(1) A credit rating agency, if it desires renewal of the certificate granted to
it, shall make to the Board an application for the renewal of the certificate
of registration. [3](1A)
An application for renewal of
certificate of registration made under sub-regulation (1) shall be accompanied
by a non refundable application fee as specified in the Second Schedule.
(2) Such application shall
be made not less than three months before expiry of the period of validity of
the certificate, specified in sub-regulation(2) of regulation 9.. (3)
The application for renewal made under sub-regulation (1)- – (a) shall
be accompanied by a renewal fee as specified in the second schedule and (b)
as far as may be, shall be dealt with in the same manner as if it were an
application for the grant of a fresh certificate under regulation 3. Procedure where certificate is not granted 11.
(1) If, after considering an application made under regulation 3 or regulation
10 as the case may be, the Board is of the opinion that a certificate should
not be granted or renewed, as the case may be, it may, after giving the
applicant a reasonable opportunity of being heard, reject the application. (2) The decision of the Board, not to grant or not to
renew the certificate under sub-regulation (1) shall be communicated by the
Board to the applicant within a period of thirty days of such decision, stating
the grounds of the decision. (3) Any applicant aggrieved by the decision of the
Board rejecting his application under sub-regulation (1) may, within a period
of thirty days from the date of receipt by him of the communication referred to
in sub-regulation (2) apply to the Board in writing for re-consideration of
such decision. (4)
Where an application for re-consideration is made under sub-regulation (3) the
Board shall consider the application and communicate to the applicant its
decision in writing, as soon as may be. Effect
of refusal to grant certificate 12.
(1) An applicant referred to in sub-regulation (1) of regulation 11 whose
application for the grant of a certificate has been rejected under regulation
11, shall not undertake any rating activity. (2) An applicant referred to in sub-regulation (2) of
regulation 3, whose application for the grant of a certificate has been
rejected by the Board under regulation 11, shall, on and from the date of the
receipt of the communication under sub-regulation (2) of regulation 11, cease
to carry on any rating activity. (3)
If the Board is satisfied that it is in the interest of the investors, it may
permit the credit rating agency referred to under sub-regulation (1) or (2) to
complete the rating assignments already entered into by it, during the pendency of the application or period of validity of the
certificate. (4) The Board may, in order to protect the interests
of investors, issue directions with regard to the transfer of records,
documents or reports relating to the activities of a credit rating agency,
whose application for the grant or renewal of a certificate has been rejected. (5) The Board may, in order
to protect the interests of investors, appoint any person to take charge of the
records, documents or reports relating to the rating activities of a credit
rating agency referred to in sub-regulation (4) and for this purpose also
determine the terms and conditions of such appointment. CHAPTER III 13.
Every credit rating agency shall abide by the Code of Conduct contained in the Third
Schedule. 14.
Every credit rating agency shall enter into a written agreement with each
client whose securities it proposes to rate, and every such agreement shall
include the following provisions, namely:- (a) the
rights and liabilities of each party in respect of the rating of securities
shall be defined; (b) the fee to be charged
by the credit rating agency shall be specified; (c)
the client shall agree to a periodic review of the rating by the credit rating
agency during the tenure of the rated instrument; (d)
the client shall agree to co-operate with the credit rating agency in order to
enable the latter to arrive at, and maintain, a true and accurate rating of the
clients securities and shall in particular provide to the latter, true,
adequate and timely information for the purpose. (e)
the credit rating agency shall disclose to the client the rating assigned to
the securities of the latter through regular methods of dissemination,
irrespective of whether the rating is or is not accepted by the client; (f) The client shall agree
to disclose, in the offer document;- (i) the rating assigned to the
client’s listed securities by any credit rating agency during the last three
years and (ii)
any rating given in respect of the client’s securities by any other credit
rating agency, which has not been accepted by the client. (g) the client shall agree to obtain a rating from at least
two different rating agencies for any issue of debt securities whose size is
equal to or exceeds, rupees one hundred crores. Monitoring
of ratings 15.
(1) Every credit rating agency shall, during the lifetime of securities rated
by it continuously monitor the rating of such securities. (2)
Every credit rating agency shall disseminate information regarding newly
assigned ratings, and changes in earlier rating promptly through press releases
and websites, and, in the case of securities issued by listed companies, such
information shall also be provided simultaneously to the concerned regional
stock exchange and to all the stock exchanges where the said securities are
listed. Procedure
for review of rating
16.
(1) Every credit rating agency shall carry out periodic reviews of all
published ratings during the lifetime of the securities. (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
this regulation, the credit rating agency shall carry out the review on the
basis of the best available information. 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. (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. Internal
procedures to be framed 17.
Every credit rating agency shall frame appropriate procedures and systems for
monitoring the trading of securities by its employees in the securities of its
clients, in order to prevent contravention of – (a) the
Securities and Exchange Board of (b)
the Securities and Exchange Board of India (Prohibition of Fraudulent and
Unfair Trade Practices relating to the Securities Market) Regulations, 1995;
and (c) other laws relevant to
trading of securities. Disclosure of Rating Definitions and Rationale 18. (1) Every credit rating
agency – (a) shall
make public the definitions of the concerned rating, along with the symbol and,
(b)
shall also state that the ratings do not constitute recommendations to buy,
hold or sell any securities (2) Every credit rating agency shall make available to the
general public information relating to the rationale of the ratings, which
shall cover an analysis of the various factors justifying a favourable
assessment, as well as factors constituting a risk. Submission of
information to the Board 19.
(1) Where any information is called for by the Board from a credit rating
agency for the purposes of these regulations, including any report relating to
its activities, the credit rating agency shall furnish such information to the
Board – (a) within
a period specified by the Board or (b) if no such period is
specified, then within a reasonable time. (2) Every credit rating agency shall, at the close of each
accounting period, furnish to the Board copies of its balance sheet and profit
and loss account. Compliance
with circulars etc., issued by the Board 20.
Every credit rating agency shall comply with such guidelines, directives,
circulars and instructions as may be issued by the Board from time to time, on
the subject of credit rating. [4]20A. Appointment of Compliance Officer (1.) Every credit rating agency shall appoint
a compliance officer who shall be responsible for monitoring the compliance of
the Act, rules and regulations, notifications, guidelines, instructions etc
issued by the Board or the Central Government. (2.) The compliance
officer shall immediately and independently report to the Board any non-compliance
observed by him.] Maintenance
of Books of Accounts records, etc. 21. Every credit rating
agency shall keep and maintain, for a minimum period of five years, the following books of accounts, records
and documents, namely: (a) copy of its balance
sheet, as on the end of each accounting period; (b) a copy
of its profit and loss account for each accounting period; (c) a copy of the auditor’s
report on its accounts for each accounting period. (d) a copy of the agreement
entered into, with each client; (e) information supplied by
each of the clients; (f) correspondence with
each client; (g)
ratings assigned to various securities including upgradation
and down gradation (if any) of the ratings so assigned. (h) rating notes considered
by the rating committee; (i)
record of decisions of the rating committee; (i)
letter assigning rating; (k)
particulars of fees charged for rating and such other records as the Board may
specify from time to time. (2) Every credit rating agency shall intimate to the Board
the place where the books of account, records and documents required to be
maintained under these regulations are being maintained. 22.
Every credit rating agency shall, within two month’s from the date of the
auditor’s report, take steps to rectify the deficiencies if any, made out in
the auditor’s report, insofar as they relate to the activity of rating of
securities. 23.
Every credit rating agency shall treat, as confidential, information supplied
to it by the client and no credit rating agency shall disclose the same to any
other person, except where such disclosure is required or permitted by under or
any law for the time being in force. 24. (1) Every credit rating
agency shall – (a) specify
the rating process; (b)
file a copy of the same with the Board for record; and file with the Board any
modifications or additions made therein from time to time. (2) Every
credit rating agency shall, in all cases, follow a proper rating process. (3)
Every credit rating agency shall have professional rating committees,
comprising members who are adequately qualified and knowledgeable to assign a
rating. (4)
All rating decisions, including the decisions regarding changes in rating,
shall be taken by the rating committee. (5)
Every credit rating agency shall be staffed by analysts qualified to carry out
a rating assignment. (6)
Every credit rating agency shall inform the Board about new rating instruments
or symbols introduced by it. (7)
Every credit rating agency, shall, while rating a security, exercise due
diligence in order to ensure that the rating given by the credit rating agency
is fair and appropriate. (8) A credit rating agency
shall not rate securities issued by it. (9)
Rating definition, as well as the structure for a particular rating product,
shall not be changed by a credit rating agency, without prior information to
the Board. (10) A credit rating agency
shall disclose to the concerned stock exchange through press release and websites
for general investors, the rating assigned to the securities of a client, after
periodic review, including changes in rating, if any. CHAPTER IV 25 In this Chapter, unless
the context otherwise requires;- (a) "associate" , in relation to a promoter,
includes a body corporate in which the promoter holds ten percent or more, of
the share capital; (b)
"promoter" means a person who holds ten percent or more, of the
shares of the credit rating agency. 26 (1) No credit rating
agency shall rate a security issued by its promoter. (2) In case promoter is a lending institution, its
Chairman, director or employee shall not be a Chairman, director or employee of
credit rating agency or its rating committee. Provided
that sub-regulation (2) shall come into force within three months from
commencement of these regulations. Securities issued by certain entities, connected with
a promoter, or rating agency not to be rated 27 (1) No credit rating
agency shall, rate a security issued by an entity, which is;- (a) a
borrower of its promoter; or (b) a subsidiary of its
promoter; or (c) an associate of its
promoter, if (i) there are common Chairman, Directors between credit
rating agency and these entities. (ii) there are common
employees. (iii) there are common
Chairman, Directors, Employees on the rating committee. (2) No credit rating agency shall rate a security issued by
its associate or subsidiary, if the credit rating agency or its rating
committee has a Chairman, director or employee who is also a Chairman, director
or employee of any such entity [5]Provided
that the Credit Rating Agency may, subject to the provisions of sub-regulations
(1), rate a security issued by its associate having a common independent
director with it or rating committee if,- (i) such an independent director does not participate in the
discussion on rating decisions, and (ii) the
Credit Rating Agency makes a disclosure in the rating announcement of such
associate (about the existence of common independent director) on its Board or
of its rating committee, and that the common independent director did not
participate in the rating process or in the meeting of its Board of Directors
or in the meeting of the rating committee, when the securities rating of such
associate was discussed. Explanation: - (1) For the purposes of this
sub-regulation the expression ‘independent director’ means a director who,
apart from receiving remuneration as a director, does not have any other
material pecuniary relationship or transactions with the company, its
promoters, its management or its subsidiaries, which in the judgment of the
board of the company, may affect the independence of the judgment of such
director. 28.
Nothing in this Chapter shall apply to securities whose rating has been already
done by a credit rating agency before the commencement of these regulations,
and such securities may, subject to the provisions of the other Chapters of
these regulations, continue to be rated, without the need to comply with the
restrictions imposed by the regulations contained in this chapter.
29.
(1) The Board may appoint one or more persons as inspecting officers, to
undertake inspection or investigation of the books of account, records and
documents of the credit rating agencies, for any of the purposes specified in sub-regulation
(2). (2)
The purposes referred to in sub-regulation (1) shall be the following, namely: (a)
to ascertain whether the books of account, records and documents are being
maintained properly; (b) to ascertain whether the provisions of the Act and these
regulations are being complied with; (c)
to investigate into complaints received from investors, clients or any other
person on any matter having a bearing on activities of the credit rating
agency; (d) in the interest of the
securities market or in the interest of investors. (3) The inspections ordered by the Board under
sub-regulation (1) shall not ordinarily go into an examination of the
appropriateness of the assigned ratings on the merits. (4) Inspections to judge the appropriateness of the
ratings may be ordered by the Board, only in case of complaints which are
serious in nature. (5)
Inspections referred to in sub-regulation (4) shall be carried out either by
the officers of the Board or independent experts, with relevant experience or
combination of both. Notice
before inspection or investigation 30.
(1) Before ordering an inspection or investigation under regulation 29, the
Board shall give not less than ten days written notice to the credit rating
agency for that purpose. (2)
Notwithstanding anything contained in sub-regulation (1) where the Board is satisfied that in the
interest of the investors, no such notice should be given, it may, by an order
in writing, direct that the inspection or investigation of the affairs of the credit
rating agency be taken up without such notice. (3)
During the course of an inspection or investigation, the credit rating agency
against whom the inspection or investigation is being carried out shall be
bound to discharge all its obligations as provided in regulation 31 .
Obligations of credit rating agency on inspection or
investigation by the Board 31.
(1) It shall be the duty of every credit rating agency whose affairs are being
inspected or investigated, and of every director, officer or employee thereof,
to produce to the inspecting or investigating officer such books, accounts and
other documents in its or his custody or control and furnish him with such
statements and information relating to its rating activities, as the inspecting
officer may require within such reasonable period as may be specified by the
said officer. (2) The credit rating
agency shall – (a) allow the inspecting officer to have reasonable access
to the premises occupied by such credit rating agency or by any other person on
its behalf; (b)
extend to the inspecting officer reasonable facility for examining any books,
records, documents and computer data in the possession of the credit rating
agency; and (c)
provide copies of documents or other materials which, in the opinion of the
inspecting officer, are relevant for the purposes of the inspection or
investigation, as the case may be. (3) The inspecting officer, in the course of inspection or
investigation, shall be entitled to examine, or record the statements, of any officer,
director or employee of the credit rating agency for the purposes connected
with the inspection or investigation. (4)
Every director, officer or employee of the credit rating agency shall be bound
to render to the inspecting officer all assistance in connection with the
inspection or investigation which the inspecting officer may reasonably
require. Submission
of Report to the Board 32.
The inspecting officer shall, as soon as possible, on completion of the
inspection or investigation, submit a report to the Board. Provided that if
directed to do so by the Board, he may submit an interim report. [6]33 Action on inspection or investigation report The Board or the
Chairman shall after consideration of inspection or investigation report take
such action as the Board or Chairman may deem fit and appropriate including
action under the Securities and Exchange Board of India (Procedure for Holding
Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 CHAPTER VI [7]Liability for action in case of
default 34. A credit rating agency which - (a) fails to comply with
any condition subject to which a certificate has been granted; (b) contravenes any of the
provisions of the Act or these regulations or any other regulations made under
the Act; shall be dealt with in the
manner provided under the Securities and Exchange Board of India (Procedure for
holding Enquiry by Enquiry officer and Imposing penalty) Regulations, 2002. [8]35 to 42( omitted) FIRST SCHEDULE APPLICATION FOR GRANT OF CERTIFICATE / RENEWAL OF
CERTIFICATE NAME OF APPLICANT CONTACT NAME : TELEPHONE NO: FAX NO: INSTRUCTIONS FOR FILLING UP
FORM - 1. Applicants must
submit to the Board a completed application form together with appropriate
supporting documents. Supporting documents should be attested as true by a
notary public. 2. This
application form should be filled in accordance with the regulations. 3.
Application for registration will be considered, only if it is complete in all
respects. 4. All
answers must be typed. 5. Information
which needs to be supplied in more detail may be given on separate sheets which
should be attached to the application form. 6. All
signatures on the application must be original. 7. Every page of
the form as well as every additional sheet must be initialed by the authorised signatory of the applicant. 1.0 PARTICULARS OF THE
APPLICANT 1.1 Name, address of the registered
office, address for correspondence, telephone number(s), fax number(s) and name
of the contact person of the company. Address of branch offices, if any. 1.2 Date of incorporation of the Applicant company (enclose certificate of incorporation and memorandum and articles of association). Specify the following: (a) Objects (Main & Ancillary) of the Applicant company (b) Authorised,
issued, subscribed and paid up capital 1.3
Category to which the Applicant company belongs to:] (a) Limited company - Private/Public. (b) Unlimited company. If listed,
names of Stock Exchanges and latest share price to be given. 1.4 Category to which the
Applicant company belongs to (refer regulation 3) (a) Company already in the business of
undertaking rating activities (b) Company proposing to undertake
rating activities for the first time. 2.0 ELIGIBILITY CRITERIA 2.1 Category to which the promoter
(s) of the Applicant company belong to (refer regulation 4). 2.2 Name the promoters and
indicate their shareholding in the company. 2.3 Enclose a Chartered Accountant’s
certificate certifying the continuous net worth of Rs.100 crores
for five years, in case the promoter referred to in regulation 4(e). 2.4 Net worth of the company as per
the last audited accounts not earlier than three months from the date of
application [refer regulation 5 (c)]. Enclose a Chartered Accountant’s
certificate certifying the same. 3.0 PARTICULARS OF
DIRECTORS/KEY PERSONNEL 3.1 Particulars of Directors of the
company, which shall include name, qualification, experience, shareholding in
the company and directorship in other companies. 3.2 Particulars of Key Personnel of
the company, which shall include name, designation in the company,
qualification, previous positions held, experience, date of appointment in the
company and functional areas 4.0 INFRASTRUCTURE 4.1 Details of infrastructure
including computing facilities, facilities for research and database available
with the company and whether the existing infrastructure is adequate to carry
on the rating activities proposed to be undertaken by the company. Any further
plan for additional/ improved infrastructure to be indicated. 5.0 MAJOR SHAREHOLDERS 5.1 List of major shareholders (holding 5% and above of
applicant directly or along with associates) Shareholding as on :
______________________________
6.0 ASSOCIATE CONCERNS 6.1 Particulars of associate
companies/concerns which shall include name, address, type of activity handled,
nature of interest of the Applicant company in the associate, nature of
interest of promoter(s) of the applicant in the associate. 6.2 Whether the Board has granted/
refused registration as credit rating agency to any associate of the applicant.
Give the details like date of application, date of refusal/ registration,
reasons for refusal etc. 7.0 BUSINESS INFORMATION
OF THE COMPANY 7.1 History, major events and
present activities. Details of Experience in Credit Rating activities and other
related activities 7.2 If the company is proposing to
engage in credit rating activities for the first time, business plan of the
company with projected volume of activities and income for which registration
is sought to be specifically given. 7.3 Securities Rating
activities handled during the last three years as per the table below
7.4 Details of other rating
activities undertaken during last three years. 7.5 Any other information considered
relevant to the nature of services rendered by the applicant. 8.0 FINANCIAL
INFORMATION ABOUT THE APPLICANT 8.1 Net
worth
(Rs. In Lacs)
8.2 Please enclose audited annual
accounts for the last three years. Where unaudited
reports are submitted, give reasons. If minimum networth
requirement has been met after last audited annual accounts, audited statement
of accounts of a later date also be submitted. 8.3 Name and Address of the
Principal bankers of the Applicant company . 8.4 Name and address of the
Auditors. 9.0 OTHER INFORMATION 9.1
Details of all pending litigations against the applicant company, directors and
employees:
9.2 Indictment or involvement in any fraud or economic
offences by the applicant or any of its Directors, or key managerial Personnel,
in the last three years. 10.0 DECLARATION 10.1 Give the following
declarations signed by two directors: I/We
hereby apply for registration. I/We warrant that I/We have truthfully and fully answered
the questions above and provided all the information which might reasonably be
considered relevant for the purposes of my registration. I/We declare that the information supplied in the
application form is complete and correct
For and on behalf of ____________________________________________________ Director Name in Block Letters Date
FORM B
I. In exercise of
the powers conferred by sub-section (1) of section 12 of the Securities and
Exchange Board of India Act, 1992, read with the rules and regulations made thereunder the Board hereby grants a certificate of
registration to ___________________________ as a credit rating agency in
accordance with and subject to the conditions in the regulations to carry out
the activity of the credit rating agency:- II.
Registration Code for the credit rating agency is CRA/ / / III. This
certificate shall be valid from _____________ to _________ and may be renewed
as specified in regulation 10 of Securities and Exchange Board of India (Credit
Rating Agencies) Regulations, 1999. Place : Date By
[9]SECOND SCHEDULE
Application fee (Rs)
50, 000/- 1 The fees specified above
shall be paid by way of a bank draft in favour of
"Securities and Exchange Board of India" payable at Mumbai. [10]Third Schedule Securities
and Exchange Board of [Regulation
13] Code of conduct 1. A credit rating agency shall make all efforts
to protect the interests of investors. 2. A credit rating agency, in the conduct of its
business, shall observe high standards of integrity, dignity and fairness in
the conduct of its business. 3. A credit rating agency shall fulfill its
obligations in a prompt, ethical and professional manner. 4. A
credit rating agency shall at all times exercise due diligence, ensure proper
care and exercise independent professional judgment in order to achieve and
maintain objectivity and independence in the rating process. 5. A credit rating agency shall have a reasonable
and adequate basis for performing rating evaluations, with the support of
appropriate and in depth rating researches. It shall also maintain records to
support its decisions. 6. A credit rating agency shall have in place a
rating process that reflects consistent and international rating standards. 7.
A credit rating agency shall not indulge in any unfair competition nor
shall it wean away the clients of any other rating agency on assurance of
higher rating. 8. A credit rating agency shall keep track of all
important changes relating to the client companies and shall develop efficient
and responsive systems to yield timely and accurate ratings. Further a credit
rating agency shall also monitor closely all relevant factors that might affect
the creditworthiness of the issuers. 9. A credit rating
agency shall disclose its rating methodology to clients, users and the public. 10. A credit rating agency shall,
wherever necessary, disclose to the clients, possible sources of conflict of
duties and interests, which could impair its ability to make fair, objective and unbiased ratings. Further it shall ensure that no
conflict of interest exists between any member of its rating committee
participating in the rating analysis, and that of its client. 11. A credit rating agency shall not
make any exaggerated statement, whether oral or written, to the client either
about its qualification or its capability to render certain services or its
achievements with regard to the services rendered to other clients. 12. A credit rating agency shall not
make any untrue statement, suppress any material fact or make any
misrepresentation in any documents, reports, papers or information furnished to
the board, stock exchange or public at large. 13. A credit rating agency shall ensure
that the Board is promptly informed about any action, legal proceedings etc.,
initiated against it alleging any material breach or non-compliance by it, of
any law, rules, regulations and directions of the Board or of any other
regulatory body. 14. A credit rating agency shall
maintain an appropriate level of knowledge and competence and abide by the
provisions of the Act, regulations and circulars, which may be applicable and
relevant to the activities carried on by the credit rating agency. The credit
rating agency shall also comply with award of the Ombudsman passed under the
Securities and Exchange Board of India (Ombudsman) Regulations, 2003. 15. A credit rating agency shall ensure
that there is no misuse of any privileged information including prior knowledge
of rating decisions or changes. 16. (a) A credit rating agency
or any of his employees shall not render, directly or indirectly any investment
advice about any security in the publicly accessible media. (b) A credit rating agency shall
not offer fee-based services to the rated entities, beyond credit ratings and
research. 17. A credit rating agency shall ensure
that any change in registration status/any penal action taken by board or any
material change in financials which may adversely affect the interests of
clients/investors is promptly informed to the clients and any business
remaining outstanding is transferred to another registered person in accordance
with any instructions of the affected clients/investors. 18. A credit rating agency shall
maintain an arm’s length relationship between its credit rating activity and
any other activity. 19. A credit rating agency shall
develop its own internal code of conduct for governing its internal operations
and laying down its standards of appropriate conduct for its employees and
officers in the carrying out of their duties within the credit rating agency
and as a part of the industry. Such a code may extend to the maintenance of
professional excellence and standards, integrity, confidentiality, objectivity,
avoidance of conflict of interests, disclosure of shareholdings and interests,
etc. Such a code shall also provide for procedures and guidelines in relation
to the establishment and conduct of rating committees and duties of the
officers and employees serving on such committees. 20. A credit rating agency shall
provide adequate freedom and powers to its compliance officer for the effective
discharge of his duties. 21. A credit rating agency shall ensure
that the senior management, particularly decision makers have access to all
relevant information about the business on a timely basis. 22. A credit rating agency shall ensure
that good corporate policies and corporate governance are in place. 23. A credit rating agency shall not,
generally and particularly in respect of issue of securities rated by it, be
party to or instrumental for— (a) creation
of false market; (b) price
rigging or manipulation; or (c) dissemination
of any unpublished price sensitive information in respect of securities which
are listed and proposed to be listed in any stock exchange, unless required, as
part of rationale for the rating accorded.
[1] Omitted by the SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002, w.e.f. 27.9.2002. Prior to its omission it read as "enquiry officer"
means any officer of the Board, or any other person, who is authorised by the Board under regulation 38” [2] Inserted by SEBI (Criteria for Fit and Proper Person) Regulations, 2004, w.e.f. 10.3.2004. [3] Inserted
by SEBI (Credit Rating Agencies)(Amendment) Regulations, 2006,w.e.f. [4] Inserted by SEBI (Investment Advice by Intermediaries) (Amendment) Regulations, 2001, w.e.f.29-5-2001. [5] Inserted
by the SEBI(Credit Rating Agencies)(Amendment)Regulations, 2003, w.e.f. [6]
Substituted by SEBI (Procedure For Holding Enquiry by Enquiry officer and
Imposing Penalty) Regulation, 2002 w.e.f. Communication of Findings etc. to the
Credit Rating Agency 33. (1) The Board
shall, after consideration of the inspection report or the interim report
referred to in regulation 32, communicate the findings of the inspecting
officer to the credit rating agency and give it a reasonable opportunity of
being heard in the matter. (2) On receipt of the explanation, if any, from the credit rating agency, the Board may call upon the credit rating agency to take such measures as the Board may deem fit in the interest of the securities market and for due compliance with the provisions of the Act and these regulations. [7] Substituted by the SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing penalty) Regulations, 2002.w.e.f.27-9-2002.Prior to its substitution it read as follows. Lability for action in case of default 34. (1) A credit rating agency which: - (b)
contravenes any of the provisions of the Act or these regulations or any other
regulations made under the Act; shall
be liable to either of the penalties specified in sub-regulation (2). (2) The penalties referred to in sub-regulation
(1) are:- (a) suspension of
registration; or (b) cancellation of registration. [8] Substituted by SEBI (Procedure for Holding Enquiry by
Enquiry officer and Imposing Penalty) Regulation, 2002 w.e.f.
Suspension of registration 35. A penalty of suspension of the
certificate of registration of a credit rating agency may be imposed by the
Board, if the case falls under sub-regulation (1) of regulation 34. 36. (1) A penalty of cancellation of
certificate of registration of a credit rating agency may be imposed by the
Board, if: (a) the credit rating agency
is guilty of fraud, or has been convicted of an offence involving moral
turpitude or an economic offence; or (b) in case of repeated defaults of the
nature mentioned in sub-regulation (1) of regulation 34. (c) the credit rating agency is declared
insolvent or wound up; (2) The Board shall furnish
to the credit rating agency reasons in writing for cancellation of
registration. Manner of Making
Order of Suspension and Cancellation 37. No order of suspension or of cancellation
of the certificate of registration, shall be passed by the Board, except after
holding an enquiry in accordance with the procedure specified in regulation 38.
Provided that the holding of such an
enquiry shall not be necessary in cases where: (a) the credit rating agency
is declared insolvent or is wound up; or (b) the credit rating agency fails to pay to
the Board registration fees or renewal fee as per these regulations. Provided further that
an opportunity of hearing shall be given before any action against the credit
rating agency is taken. Manner of Holding
enquiry before Suspension or Cancellation 38. (1) For the
purpose of holding an enquiry under regulation 37, the Board may appoint one or
more enquiry officers. (2) The enquiry
officer shall issue to the credit rating agency a notice at the registered
office or the principal place of business of the credit rating agency, setting
out the grounds on which action is proposed to be taken against it and calling
upon it to show cause against such action within a period of fourteen days from
the date of receipt of such notice. (3) The credit rating agency, may, within fourteen days from the date
of receipt of such notice, furnish to the enquiry officer a written reply,
together with copies of documentary or other evidence relied on by it or sought
by the Board from the credit rating agency. (4) The enquiry
officer shall give a reasonable opportunity of hearing to the credit rating
agency, to enable it to make its submission in support of its reply made under sub-regulation
(3). (5) Before the
enquiry officer, the credit rating agency may either appear in person or
through any person duly authorised on this behalf. Provided that no lawyer or advocate
shall be permitted to represent the credit rating agency at the enquiry; Provided further
that where a lawyer or an advocate has been appointed by the board as a
presenting officer under sub-regulation (6), it shall be lawful for the credit
rating agency to present his case through a lawyer or advocate. (6) If it is considered necessary, the enquiry officer may request the
Board to appoint a presenting officer to present its case. (7) The enquiry
officer shall, after taking into account all relevant facts and submissions
made by the credit rating agency, submit a report to the Board and recommend
the penalty, if any to be imposed upon the credit rating agency as also the
grounds on the basis of which the proposed penalty is justified. 39. (1) On receipt
of the report from the enquiry officer, the Board shall consider the same and
issue a show-cause notice to the credit rating agency, as to why the penalty as
proposed by the enquiry officer should not be imposed. (2) The credit
rating agency shall, within fourteen days of the date of receipt of the
show-cause notice, send a reply to the Board. (3) The Board, after considering the reply of the credit rating agency
to the show-cause notice, shall as soon as possible pass such order as it deems
fit. (4) Every order
passed by the Board under sub-regulation (3) shall be self-contained and shall give
reasons for the conclusions stated therein, including justification of the
penalty if any imposed by that order. (5) The Board shall send to the credit rating
agency a copy of the order passed under sub-regulation (3). Effect of suspension
and cancellation of registration of credit rating agency 40. (1) On and
from the date of suspension of the certificate of registration, the credit
rating agency shall cease to carry on any rating activity during the period of
suspension and shall be subject to such directions of the Board with regard to
any records, documents securities or reports that may be connected with in its
rating activities, as the Board may specify. (2) On and from the date of cancellation of
the certificate of registration, the credit rating agency shall: - (a) cease to carry in any
rating activity and (b) shall be
subject to such directions of the Board with regard to the transfer of records,
documents, securities or reports connected with its rating activities which may
be in its custody or control as the Board may specify. (3)
Notwithstanding the suspension or cancellation of certificate of a credit
rating agency, if the Board is satisfied that it is in the interest of the
investors to grant such permission, the Board may grant to the credit rating
agency permission to carry on such activities relating its assignments
undertaken prior to such suspension or cancellation, as the Board may specify. Publication of Order
of Suspension or Cancellation 41. The order of suspension or cancellation
of certificate of registration, passed under sub-regulation (3) of regulation
(39) shall be published by the Board in at least two daily newspapers. Appeal to the
Securities Appellate Tribunal 42 .Any
person aggrieved by an order of the Board made, on and after the commencement
of the Securities Laws (Second Amendment) Act, 1999, (i.e., after 16th December
1999), under these regulations may prefer an appeal to a Securities Appellate
Tribunal having jurisdiction in the matter [Prior to amendment 28.3.2000
it read as follows: Appeal
to the Central Government Any person aggrieved by an
order of the Board under these Regulations; (a)
Suspending a
certificate of registration; (b)
Cancelling certificate of registration, may prefer an appeal to the
Central Government against such order, in accordance with the Securities and
Exchange Board of India (Appeal to Central Government) Rules, 1993] [9] Substituted by SEBI ( Credit Rating Agencies) (Amendment) Regulations, 2006 Earlier it read as follows: Application fee (Rs)
25, 000/- [10]
Substituted by the SEBI (Credit Rating Agencies)(Second Amendment) Regulation,
2003 w.e.f THIRD
SCHEDULE
CODE
OF CONDUCT FOR CREDIT RATING AGENCIES
(1)
A credit rating agency in the conduct of its business shall observe high
standards of integrity and fairness in all its dealings with its clients. (2) A credit rating
agency shall fulfil its obligations in an ethical
manner. (3)
A credit rating agency shall render at all times high standards of service,
exercise due diligence, ensure proper care and exercise independent
professional judgement. It shall wherever necessary,
disclose to the clients, possible sources of conflict of duties and interests,
while providing unbiased services. (4)
The credit rating agency shall avoid any conflict of interest of any member of
its rating committee participating in the rating analysis. Any potential
conflict of interest shall be disclosed to the client. (5)
A credit rating agency shall not indulge in unfair competition nor shall they
wean away client of any other rating agency on assurance of higher rating. (6)
A credit rating agency shall not make any exaggerated statement, whether oral
or written, to the client either about its qualification or its capability to
render certain services or its achievements in regard to services rendered to
other clients. (7)
A credit rating agency shall always endeavor to ensure that all professional
dealings are effected in a prompt and efficient manner. (8)
A credit rating agency shall not divulge to other clients, press or any other
party any confidential information about its client, which has come to its
knowledge, without making disclosure to the concerned person of the rated
company / client. (9)
A credit rating agency shall not make untrue statement or suppress any material
fact in any documents, reports, papers or information furnished to the Board or
to public or to stock exchange. (10)
A credit rating agency shall not generally and particularly in respect of issue
of securities rated by it be party to - (a) creation of false market;
(b) passing of
price sensitive information to brokers, members of the stock exchanges, other
players in the capital market or to any other person or take any other action
which is unethical or unfair to the investors. (11)
A credit rating agency shall maintain an arm’s length relationship between its
credit rating activity and any other activity. (12) A credit rating agency shall abide by the
provisions of the Act, regulations and circulars which may be applicable and
relevant to the activities carried on by the credit rating agency. [Inserted on
25-9-2001 (11 A) (a) A credit rating agency or any of his employees shall not
render, directly or indirectly any investment advice about any security in the
publicly accessible media, whether real - time or non- real time, unless a
disclosure of his interest including long or short position in the said
security has been made, while rendering such advice. (b) In case an
employee of the credit rating agency is rendering such advice, he shall also
disclose the interest of is dependent family members and the employer including
their long or short position in the said security, while rendering such
advice.] |
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