Credit Rating Agency CEOs Can’t Be Members Of Rating Committees, Says Securities & Exchange Board Of India

In a move aimed at enhancing corporate governance norms, the Securities & Exchange Board of India (SEBI) has stated that chief executive officers (CEOs) of credit rating agencies cannot be members of rating committees.

Also, credit rating committees of credit rating agencies 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 capital market regulator has also proposed changes to the constitution of the boards of credit rating agencies.

The SEBI stated that one-third of the board of a credit ratings agency should comprise of independent directors, if the board is chaired by a non-executive director.
Besides, in case a credit rating agency board is chaired by an executive director, then half of the board should comprise of independent directors.

It has been recommended by the SEBI that the board of a credit rating agency should constitute two committees, namely a ratings sub-committee as well as a nomination and remuneration committee.

According to the SEBI, the nomination and remuneration committee would have to be chaired by an independent director.

During the rating process, credit ratings agencies should record minutes of meeting with the managements of issuing companies and incorporate these in rating committee notes.

Credit rating agencies would have to meet audit committees of rated companies, at least once in a year, to discuss issues including related party transactions, internal financial control as well as other material disclosures made by managements, which could have a bearing on rating of listed non-convertible debentures, the market regulator has stated.