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Rating agency CEOs can’t be part of rating panel: Sebi

The nomination and remuneration committee will have to be chaired by an independent director.

ET Bureau|
Nov 05, 2019, 11.14 AM IST
The Securities and Exchange Board of India (Sebi) on Monday said the chief executive officer of a credit rating agency cannot be a member of the rating committee, in a move aimed at enhancing governance norms.

The rating committees of a credit rating agency (CRA) would have to report to a chief ratings officer, who in turn would have to directly report to the ratings sub-committee of the board of the rating agency.

The regulator has also proposed changes to constitution of the board of a CRA. It said one third of the board of a CRA should comprise of independent directors, if the board is chaired by a non-executive director. And in case the board of the CRA is chaired by an executive director, then half of the board should comprise of independent directors.

The board of a CRA should constitute two committees — ratings sub-committee and nomination and remuneration committee.

The nomination and remuneration committee will have to be chaired by an independent director.

The regulator also said during the rating process, CRAs should record minutes of the meeting with issuer management and incorporate it in the rating committee note.

“CRAs shall meet the audit committee of the rated entity, at least once in a year, to discuss issues including related party transactions, internal financial control and other material disclosures made by the management, which have a bearing on rating of the listed NCDs,” Sebi said.

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