Sebi asks rating agencies to disclose methodology, fees

The market regulator Sebi today asked credit rating agencies (CRAs) to disclose their methodologies and fees charged from the companies they rate, a move that will promote greater transparency.

The disclosure guidelines, issued by Sebi against the backdrop of the recent global financial meltdown, require CRAs to frame policies and a code of conduct to deal with the issues related to conflict of interest between their analysts and entities being rated.

Sebi said the CRAs will have to ensure full compliance with the guidelines by June 30 and make mandatory disclosures twice annually.

The role of the rating agencies was questioned during the global financial meltdown as many of the companies and their issues collapsed despite enjoying high ratings.
      
As per the Sebi guidelines, the CRAs will have to maintain records of the important factors underlying the credit rating and a summary of discussions with all the stakeholders involved as well as decisions of the rating committee, including voting details and notes of dissent.
     
"These records should be maintained till five years after maturity of instruments and be made available to auditors and regulatory bodies when sought by them," Sebi said in a circular, adding the CRAs will also have to publish information about the historical default rates.
     
The four major credit rating agencies that operate in the country are Crisil, Fitch, Icra and Care. These agencies, based on the creditworthiness of companies, assign them ratings (like AAA, AA, BBB and so on) which are used by investors, banks and other institutions.