JOIN USThe committee, in its report on ‘Comprehensive Regulation for Credit Rating Agencies’ said,”there may be greater disclosures regarding materially significant revenues received from a particular issuer and non-rating business like advisory services.” The committee was set up by a coordinating body between the Sebi, RBI, PFRDA and IRDA, as the role of credit rating agencies has come under sharp criticism for fuelling the still lingering global financial crisis and the resultant recession.
The committee, comprising officials from the Finance Ministry and these regulators, also added that rating agencies “should not be allowed to enter into any business that may directly or indirectly have conflicts of interest with their basic job of rating.” “The committee took note of international action in this regard and recommend greater disclosures regarding materially significant revenues received from a particular issuer and non-rating business like advisory services,” the report said.
However, it added that there is no immediate concern over the operations of rating agencies in the country, even in the context of the recent financial crisis. There are five credit rating agencies currently operating in the country which are registered Sebi, including Crisil, ICRA, Fitch India, CARE and Brickworks. “We feel that prima facie there is no immediate concern about their operations and activities even in the context of the recent financial crisis,” the panel said, adding however that there is a need to strengthen the existing regulations by learning appropriate lessons from the current crisis.
The role of global rating agencies drew sharp criticism as many of the highly rated American banking and financial companies filed for bankruptcy in 2008, fuelling global financial crisis and a worldwide economic recession. Meanwhile, the committee also pointed out the existence of many rating agencies which not registered with the Sebi.
To address the issue, it said no entity shall bear a name having the words ‘credit rating’ unless it is registered with market watchdog and also that all the existing agencies shall incorporate the word ‘credit rating’ in their names. Currently, the regulations mandate that a credit rating agency shall not offer fee-based services to the rated entities, beyond credit ratings and research.
Besides, it also asked the rating agencies to develop their own internal code of conduct and lay down rules for appropriate conduct by their employees and officers within their offices and as a part of the industry.
Press Trust of India