Business model of Credit Rating com...
In the recent two decades, credit ratings have become increasingly crucial among investors and...
The SEBI issued a circular “Suspension, Cancellation or Surrender of Certificate of Registration of a Credit Rating Agency” on 13th October 2022. The said circular is issued to ensure orderly migration of ratings. It is directed by the SEBI that listed entities that have obtained a rating from a Credit Rating agency whose CRA registration certificate is suspended, cancelled or surrendered shall have to obtain a new rating from the registered Credit Rating Agency. Further, the circular has provided the detailed compliance procedure for the concerned CRA during the cancellation, surrender, and suspension of the CRAs registration certificate.
The Credit Rating Agencies (CRA) are responsible for doing calculations based on the financial statements of the firm issuing debt. Hence, they provide a comprehensive view regarding the returns and risks of a firm issuing debt through a recognised stock exchange. They are one of the market intermediaries involved in the business of rating securities offered through the right and public issues. The agencies further rate the debtors on their ability to pay the debt based on the calculations obtained from the financial statements.
The Credit Rating Agencies are required to obtain a Registration certificate from the SEBI for carrying on the activities of rating securities. The application is to be made to SEBI, who will, after examining the relevant documents and conditions, grant a registration certificate in accordance with Credit Rating Regulations 1999. The certificate act as an authenticity for the investors as they will invest in the securities based on those ratings.
The concerned Credit rating agency shall need to comply with the following conditions after submitting the request for the surrender of the registration certificate to SEBI:
If the request letter for the CRA registration certificate gets accepted, then the concerned Credit Rating Agency shall comply with the following conditions:
The concerned CRA, during the period of suspension, shall comply with the following conditions:
The validity of the rating assigned by the CRA under Suspension, cancellation and surrender shall be according to the following:
The current framework has mandated that the services of CRAs whose registration certificate is cancelled, suspended or surrendered shall not be used by the listed entities or issuers for complying under SEBI regulations. Further, the listed entities who require credit rating can obtain the same from SEBI registered Credit Rating agencies.
The framework has mandated that the below-mentioned provisions of the SEBI regulations shall not be applicable for the CRAs from the date of order of cancellation or suspension and order of request application for surrender of CRA registration certificate.
|Para 2(I) to 2(III)||SEBI/HO/MIRSD/MIRSD4/ CIR/P/2017/28||31st March 2017|
|Para 2||SEBI/HO/MIRSD/DOP2/CIR/P/2018/95||6th June 2018|
|Para 3(b)||SEBI/HO/MIRSD/CRADT/CIR/P/2020/2||3rd January 2020|
|Para VII||SEBI/HO/DDHS/DDHS-RACPOD2/P/CIR/2022/ 113||25th August 2022|
The framework requires the issuer to furnish an undertaking that the credit rating for securities listed or proposed to be listed are available with other registered CRAs. However, while making an undertaking, it is also required that confirmation be received from other SEBI-registered CRA on the availability of credit rating for such securities. Further, the Credit rating agency whose CRA registration Certificate is cancelled, suspended or surrendered shall comply with the circular SEBI/HO/MIRSD/MIRSD4/CIR/P/2016/119 dated 1st November 2016.
The framework provides an orderly migration of credit rating from the CRA whose CRA registration is cancelled, surrendered, or suspended to the SEBI-registered CRA. The framework will provide transparency in the migration process and ensure timely compliance with various requirements mentioned under CRA guidelines. Moreover, the validity of the rating upon cancellation or suspension of the registration certificate shall be valid till the date the concerned CRA get wound up or the date of acceptance of surrender by SEBI. The framework will ensure that the credit ratings for listed and non-listed securities are not hampered during the migration stage. Henceforth, all the concerned CRA shall comply with all the provisions whose registration certificate is cancelled, suspended, or surrendered.
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