Market regular Sebi has asked registered credit rating agencies to formulate a policy on a separation practice with their non-rating entities to strengthen the firewall between them.
"Credit rating agencies shall formulate a policy on separation or firewall practices with the non-rating entities and document the same in their internal operational manuals or governing document," the capital market regulator said in a circular on September 23.
Such a policy, which will be ratified by the board of directors of these entities, will cover nature and extent of sharing of infrastructure, officials and employees or resources, if any, between the rating agencies and their non-rating entity, including specification on whether such arrangement is temporary. It will also include steps taken by credit rating agencies to ensure the independence of their credit rating process in view of the above arrangement with the non-rating entity.
The policy will also provide guidance to employees on sharing of information or resources, if any, between the credit rating agency and their non-rating arm to mitigate any potential or actual conflict of interest, the market regulator said. Credit rating agencies are required to disclose details of any common director or CEO or managing director between them and their non-rating entities on their websites. Such a disclosure should be updated on the first working day of each month.