TaxTMI 
TaxTMI 
Master Circular for Credit Rating Agencies
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....isions of existing circulars issued by other Departments of SEBI relevant to CRAs. Yours faithfully, Surabhi Gupta Deputy General Manager Phone No.: 022 - 26449315 Email ID: [email protected] Table of Contents SECTION 1: REGISTRATION REQUIREMENTS 1.1 Online Registration Mechanism for Securities Market Intermediaries 1.2 Digital Mode of Payment 1.3 Grant of Prior approval for change in control to Credit Rating Agencies 1.4 Surrender of Certificate of Registration SECTION 2: RATING OPERATIONS 2.1 Standardization of Rating Symbols and Definitions 2.2 Operations Manual/ Internal governing document 2.3 Rating Process 2.4 Monitoring and Review of Ratings 2.5 Standardization of Press Release for Rating Actions 2.6 Rating Agreement between the Issuer and the CRA 2.7 Dealing with Conflict of interest 2.8 Unsolicited Credit Ratings 2.9 Policy in respect of non-co-operation by the issuer 2.10 Withdrawal of ratings 2.11 Sharing of information regarding issuer companies between Debenture Trustees and Credit Rating Agencies 2.12 Rating of instruments other than "securities" SECTION 3: REPORTING AND DISCLOSURES 3.1 Defa....
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..... 1.2 Digital Mode of Payment ^SEBI Circular SEBI/HO/GSD/T&A/CIR/P/2017/42 dated May 16, 2017 1.2.1. SEBI has notified the SEBI (Payment of Fees and Mode of Payment) (Amendment) Regulations, 2017 on March 06, 2017 to enable digital mode of payment (RTGS/NEFT/IMPS etc.) of fees/penalties/remittance/other payments etc. 1.2.2. Pursuant to above, SEBI has been receiving direct credit of amounts from various intermediaries / other entities. 1.2.3. In order to identify and account such direct credit in the SEBI account, it has been decided that the various intermediaries / other entities shall provide the information as mentioned in Annexure to SEBI once the payment is made. 1.2.4. The above information should be emailed to the respective department(s) as well as to Treasury & Accounts division at [email protected]. Annexure Date Department of SEBI Name of Intermediary/ Other Entities Type of Intermediary SEBI Registration Number (if any) PAN Amount (in `) Purpose of Payment (including the period for which payment was made e.g. quarterly, annually) Bank name and Account number from which payment is remitted UTR No. 1.3 Grant of P....
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....ses of transfer of business or client accounts to another registered intermediary, the clients shall not be subjected to any additional cost. Annexure Letter of Representation for Credit Rating Agency To, Securities and Exchange Board of India Dear Sir, Sub: Surrender of Certificate of Registration as Credit Rating Agency, Registration No. ___________ . 1. We hereby surrender our certificate of registration as Credit Rating Agency. 2. We enclose the original certificate of registration (or indemnity in case the certificate is lost or stolen) for cancellation. 3. We hereby confirm that: a. no complaint /disciplinary proceeding is pending against us; b. no investigation / inquiry by SEBI is pending against us with respect to our activities as a Credit Rating Agency; c. as on date of application, we have paid all fees; d. we shall continue to be liable for all liabilities/obligations (including monetary penalties, if any) for violations, if any, of the provisions of the SEBI Act and the SEBI (Credit Rating Agency) Regulations, 1999 that have taken place before our surrender of certificate of registration; e. all o....
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....itional requirements shall also be complied with: ^Circular No. CIR/MIRSD/ CRA/ 6/ 2010 May 3, 2010 a. The rating symbols shall clearly indicate that the ratings are for structured finance products. b. The CRA shall include all the assumptions/ covenants made while carrying out the review of such products in the Press Release. ^Circular No. SEBI/ HO/ MIRSD/ MIRSD4/ CIR/ P/ 2017/ 71 dated June 30, 2017 2.1.6. For structured products/ market linked debentures, the credit rating shall bear a prefix 'PP-MLD' denoting Principal Protected Market Linked Debentures, followed by the standardized rating symbols for long/ short term debt on the lines specified below. ^Cir. /IMD/DF/17/2011 dated September 28, 2011 ANNEXURE 1 Rating Symbols and Definitions for Long Term Debt Instruments Long term debt instruments: The instruments with original maturity exceeding one year Rating symbols should have CRA's first name as prefix AAA - Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk. AA - Instruments with this rating are considered to h....
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....the comparative standing within the category. ANNEXURE 3 Rating Symbols and Definitions for Long Term Structured Finance Instruments Long term structured finance instruments: The instruments with original maturity exceeding one year Rating symbols should have CRA's first name as prefix AAA (SO) - Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk. AA (SO) - Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk. A (SO) - Instruments with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk. BBB (SO) - Instruments with this rating are considered to have moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk. BB(SO) - Instruments with this rating are considered to have moderate risk of default regarding timely servicing of financial obligations. B(SO) -....
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....of safety regarding timely receipt of payments from the investments that they have made. Amfs - Schemes with this rating are considered to have the adequate degree of safety regarding timely receipt of payments from the investments that they have made. BBBmfs - Schemes with this rating are considered to have the moderate degree of safety regarding timely receipt of payments from the investments that they have made. BBmfs - Schemes with this rating are considered to have moderate risk of default regarding timely receipt of payments from the investments that they have made. Bmfs - Schemes with this rating are considered to have high risk of default regarding timely receipt of timely receipt of payments from the investments that they have made. Cmfs - Schemes with this rating are considered to have very high risk of default regarding timely receipt of timely receipt of payments from the investments that they have made. Modifiers {"+" (plus) / "-"(minus)} can be used with the rating symbols for the categories AAmfs to Cmfs. The modifiers reflect the comparative standing within the category. ANNEXURE 6 Rating Symbols and Definitions for Short Term Debt Mutual Fun....
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....default curing period (Instrument-wise definition of default to be followed by all CRAs is provided in the Annexure) b. Financial ratios (Explaining how a CRA analyses various financial ratios including adjustments made to financial statements for the interpretation of financial ratios) c. Consolidation of companies d. Parent support/group/government support e. Manufacturing, trading companies, and services sector f. Banks and financial institutions g. Securitization transactions h. Public finance i. Infrastructure ratings 2.2.5. Rating Process and Policies: Each CRA shall frame detailed guidelines on the following: a. General nature of compensation arrangements with rated entities b. Policy for appeal by Issuer against the rating being assigned to its instruments c. Policy for placing ratings on credit watch d. Guidelines on what constitutes non-cooperation. e. Gift policy f. Confidentiality policy g. Policy on outsourcing of activities h. Policy on provisional ratings i. FAQs on ratings j. Disclosure on managing confl....
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.... the timelines as specified in the Operations Manual/ Internal governing document. 2.2.7. Functioning and Evaluation of Rating Committees/Sub-Committees a. Each CRA shall define the obligations, responsibilities, areas of conflict of interest, etc. of rating committee members in its Operations Manual/ Internal governing document. The following shall be specifically set out in the Operations Manual/ Internal governing document of each CRA and disclosed on its website i. Eligibility for becoming committee/sub-committee members ii. Composition of committee/sub-committee iii. Minimum quorum required iv. Duties of committee members v. System of voting and recording of dissent. vi. Managing conflict of interest in the rating committee/sub-committee. b. Persons who have business responsibility shall not be part of the Rating Committee. However, the MD/ CEO may be a member of the Rating Committee if the majority of the Rating Committee members are independent. ("Independent" would mean people not having any pecuniary relationship with the CRA or any of its employees). c. Minutes of each case discussed at th....
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....have a bearing on the credit rating, c. Decisions of the rating committee(s), including voting details and notes of dissent, if any, by any member of the rating committee, and d. If a quantitative model is a substantial component of the credit rating process, the rationale for any material difference between the credit rating implied by the model and the credit rating actually assigned. e. 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. 2.3.2. The CRAs shall at all times observe high standards and fairness in conduct of the business and any act of omission or commission in contravention of the provisions of clauses 12 and/or 23 of Code of Conduct , as specified under Third Schedule of the SEBI (Credit Rating Agencies) Regulations, 1999, in letter or spirit, may result in violation of the provisions of section 12A of the Securities and Exchange Board of India Act,1992 and SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. ^Circular No. SEBI/ HO/ MIRSD/ MIRSD4/ CIR/ P/ 2016/ 119 dated Nove....
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....r/ Instruments issued by the Issuer. 2.4.3. 'No Default Statement' to be sought from the Issuer on a monthly basis: a. In order to enable timely recognition of default by the CRA, the CRA shall seek a 'No Default Statement (NDS)' from the Issuer at the end of each month, which shall be provided to the CRA by the Issuer on the first working day of the next month. b. The NDS shall require the Issuer to explicitly confirm to the CRA that it has not delayed on any payment of interest/ principal in the previous month. c. A standardized format of the NDS is provided as Annexure. Annexure: Standard Template for No Default Statement (Minimum Information be sought) To Dear Sir/ Madam, 1. We hereby Confirm that as on date there are no Over dues or default on our debt obligations 2. We also confirm that in the month ended , there has been no instance of delay in servicing of our debt obligations. 3. We also confirm that there has not been any instance of devolvement of Letter of Credit in the month ended . 4. We also confirm that in the month ended , there has been no instance of delay in servicing of debt obligations guaranteed by us. 5. ....
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....instrument is currently outstanding or not. Annexure: Standard Template for Press Release (Minimum Information be disclosed) Name of the Company Date of Press Release Details of Instrument(s) Name of the instrument Date of issuance Coupon rate Maturity Date Size of the issue Rating assigned, along with Rating Outlook Rating action (assigned/ upgraded/ downgraded) for the instrument. Detailed Rationale justifying the Rating Action/ rating assigned. List of key rating drivers for the Rating Action i.e. factors justifying favourable assessment (strengths) and factors constituting risk (weakness). Detailed description of key rating drivers highlighted above. Analytical approach (wherever applicable) taken by the CRA to assign the rating. Hyperlink/ reference to the applicable "Criteria" for rating the instrument. About the Company: Factual details of the company along with the major financial information for the last and current financial year. This shall include key financial indicators and ratios for the Issuer for the last and current financial year, in tabular form, as wel....
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....ssuers and have thereafter not disclosed such ratings on their websites. 2.6.1.3. CRAs are advised to refrain from giving Indicative Ratings without having a written agreement in place. In case such Indicative Ratings are provided by the CRA, it shall be considered as aiding and abetting the Issuer in suppression of material information by the CRA which would be in contravention of Clause 12 of Code of Conduct of CRAs and may result in violation of the provisions of section 12A of the Securities and Exchange Board of India Act, 1992 and SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 by the CRA. 2.6.2. Strengthening of Rating Agreement: 2.6.2.1. The Rating Agreement, signed between the CRA and its client (issuer/ borrower), shall have an additional clause stating that - ^Circular No. SEBI/ HO/ MIRSD/ MIRSD4/ CIR/ P/ 2016/ 119 dated November 1, 2016 "The client (issuer/ borrower) agrees to disclose the history and status (non-cooperation, non-payment of fees etc.) of previous rating relation with the earlier CRA(s) to the new CRA along with reasons for non- cooperation, etc. if applicable." ....
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....tured finance products, apart from following all the applicable requirements in case of non-structured ratings, the following additional requirements shall also be complied with a. A CRA or its subsidiaries shall not provide consultancy or advisory services regarding the design of structured finance instrument. 2.7.4. Guidelines for dealing with Conflict of Interest for investment/ trading by CRAs, Access Persons and other employees ^Circular No. CIR/MIRSD/6/2013 dated August 28, 2013 a. These Guidelines shall be applicable in case of investment / trading by CRAs and Access Persons connected to CRAs and in case of disclosures to all employees of CRAs. Explanation: "Access Persons" means officials of CRA appointed as Chief Executive or by any other designation (such as CEO/MD/President or by whatever name called who are performing functions similar to those of the Chief Executive), the employees of CRA doing the function of analyst, or compliance, or heads of the departments or divisions or any other employee as decided by CRA and the members of the Rating Committee of the CRA. b. These guidelines shall cover transactions for purchase or sale o....
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....ies that are considered for rating / grading by the CRA. v. Restrictions on employees holding ownership of securities of the issuer: A CRA shall ensure that employees involved in the rating / grading process shall not have ownership of the securities of the issuer. 2.8 Unsolicited Credit Ratings ^Circular No. CIR/ MIRSD/ CRA/ 6/ 2010 dated May 3, 2010 2.8.1. In case of unsolicited credit ratings, i.e. the credit ratings not arising out of the agreement between a CRA and the issuer, credit rating symbol shall be accompanied by the word "UNSOLICITED" in the same font size. 2.8.2. A CRA shall monitor and disclose credit rating during the life of the rated securities, as if it were a solicited rating. 2.9 Policy in respect of non-co-operation by the issuer ^Circular No. SEBI/HO/MIRSD/MIRSD4/CIR/P/2016/119 dated November 1, 2016 2.9.1. In case of non-cooperation by the issuer (such as not providing information required for rating, non-payment of fees for conducting surveillance), in line with the existing Regulations, the CRA shall continue to review the instrument, on an ongoing basis throughout the instrument's lifetime, on the basis of best available informati....
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....ime of withdrawal, the CRA shall assign a rating to such facility/ security and issue a press release as per the format prescribed at the Annexure to paragraph 2.5. The Press Release shall also mention the reason(s) for withdrawal. 2.11 Sharing of information regarding issuer companies between Debenture Trustees and Credit Rating Agencies ^Circular No. CIR/MIRSD/3/2013 dated March 15, 2013 2.11.1. SEBI (Debenture Trustee) Regulations, 1993 require the Debenture Trustees (DTs) to share information regarding the issuer companies that are their clients, with Credit Rating Agencies (CRAs). The purpose of the Regulations is to enable CRAs to perform their obligations effectively. 2.11.2. DTs have also expressed the need to receive relevant information on issuer companies from CRAs. 2.11.3. In consultation with DTs and CRAs, it has been decided that registered DTs and CRAs shall share information with each other as specified in the Annexure. DTs and CRAs may share any other information from time to time in respect of issues/issuer companies which would help them in effective discharge of their duties. 2.11.4. Further, the DTs and CRAs shall assign designated email addresse....
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....se (h) of section 2 of the Securities Contracts (Regulation) Act, 1956. 2.12.2. However it is observed that the CRAs registered with SEBI also carry out rating of other securities / instruments and loans / facilities provided by banks which are not regulated by SEBI. Such ratings are being used by the other regulators or their regulated entities for the specified purposes. 2.12.3. Therefore, it is desirable that in addition to the review/accreditation process put in place by these regulators, if any, such ratings should also be governed by the same stringent norms as applicable for rating of securities issued by way of public and rights issues. 2.12.4. In view of the above, it has been decided in consultation with the CRAs and also with other regulators that for the above mentioned ratings, CRAs shall follow the applicable requirements pertaining to rating process and methodology and its records, transparency and disclosures, avoidance of conflict of interest, code of conduct, etc. as prescribed in the Regulations and circulars issued by SEBI from time to time. 2.12.5. The half-yearly internal audit for the CRAs as prescribed by SEBI shall also cover the above mentioned....
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....ecified in the SEBI (Credit Ratings) Regulations, 1999. For ratings assigned and their periodic reviews, the CRA shall issue press releases which shall also be kept on their websites. Where a specific format has been prescribed, the disclosures shall be made in that format. 3.2.1.1. Rating Procedure: A CRA shall formulate and disclose its policies, methodology and procedures in detail regarding solicited and unsolicited credit ratings. 3.2.1.2. Credit Rating History and Defaults : A CRA shall disclose in the formats specified below: a. Details of new credit ratings assigned during last six-months (Annexure I), b. Movement of credit rating of all outstanding securities during the last six-months: i. Movement of each credit rating (Annexure II), ii. Movement of each credit rating from investment grade to noninvestment grade and vice versa (Annexure III) and iii. Movement of each credit rating that has moved by more than one notch (Annexure IV). c. The history of credit rating of all outstanding securities (Annexure V), d. On annual basis, the list of defaults separately for each rating category (e.g. AAA....
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.... a. While publishing unsolicited ratings and their movements, a CRA apart from following all the applicable requirements in case of solicited ratings shall make the following disclosures: i. the extent of participation by the issuer, its management, bankers and auditors in the credit rating process. ii. the information used and its source in arriving at and reviewing the credit rating. b. A CRA shall disclose annually i. all the unsolicited ratings carried out in the last three financial years (Annexure VIII); ii. names of issuers, out of those mentioned in (i) above, which were given solicited rating in the last financial year (Annexure VIII). 3.2.1.6. Shareholding - A CRA shall disclose its shareholding pattern as prescribed by stock exchanges for a listed company under clause 35 of Listing Agreement. 3.2.1.7. Compliance Status of IOSCO Code of Conduct - A CRA shall disclose the compliance status of each provision of IOSCO code of conduct. 3.2.2. The half-yearly disclosures stipulated above shall be made by the CRAs within 15 days from the end of the half-year (March / September). The yearly disclosures stipula....
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....releases as per requirements of Regulation 15 and 16 of SEBI (CRA) Regulations, following is clarified: i. Initial Rating: Scenario Timelines - immediately but not later than Acceptance of Rating/ Appeal for Review of Rating by the Issuer 5 working days of communication of rating by the CRA to the Issuer Disclosure of rating as non-accepted Rating In case rating is not accepted by the Issuer within a month of communication of rating by the CRA to the Issuer, the same shall be disclosed as Non-Accepted Rating on the CRA's website Dissemination of Press Release on CRA's website and intimation of same to Stock Exchange/ Debenture Trustee 2 working days of acceptance of Rating by the Issuer ii. Periodic Surveillance: Scenario Timeline - immediately but not later than Dissemination of Press Release on CRA's website and intimation of same to Stock Exchange/ Debenture Trustee 5 working days of Rating Committee Meeting iii. Dissemination of Press Release on CRA's website and intimation of same to Stock Exchange/ Debenture Trustee in case of event based review: Scenario Timeline- immediately but not later than Intimatio....
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....of new credit ratings assigned during last six-months New Ratings assigned between Apr-Sep / Oct - Mar S. No Name of the Issuer Instrument Type Issue Size (` million) Rating Annexure II-Movement* of Each Credit Rating Rating Movements between Apr-Sep / Oct - Mar S. No Name of the Issuer Rating prior to Revision Rating post Revision *Will cover only rating changes. Reaffirmations shall be excluded Annexure III - Movement of each credit rating from investment grade to non-investment grade and vice versa Rating Movement from Investment Grade and Non-investment Grade between Apr-Sep / Oct - Mar From Investment Grade to Non-investment Grade S. No Name of the Issuer Rating prior to Revision Rating post Revision From Speculative Grade to Investment Grade S. No Name of the Issuer Rating prior to Revision Rating post Revision ....
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....p; 2. Rating prior to default- B category 1. 2. Rating prior to default- C category 1. 2. Annexure VI B - Short Term Scale Rating Movement by more than one notch between Apr-Sep/ Oct -Mar S. No. Name of the Issuer Initial rating Date of Initial Rating Date of Default Recognition Rating prior to default- A1 category 1. 2. Rating prior to default- A2 category 1. 2. Rating prior to default- A3 category 1. 2. Rating prior to default- A4 category 1. 2. Annexure VII - Average Default Rates for the last 5-Financial Year Period Annexure VII A- STRUCTURED INSTRUMENTS Rating C....
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.... Manual/ Internal governing document and disclose the same on its website. c. Any change in the rating process or policies shall be disclosed on the CRA's website, while also providing a reference/ hyperlink to the original provision/ process/ policy, to enable the investors to discern the changes made to the same. 3.5 Periodical report to be submitted to SEBI ^Circular No. CIR/MIRSD/8/2011 dated June 17, 2011 3.5.1 All CRAs shall report the following change(s) to SEBI while submitting the Action Taken Report in accordance with SEBI Circular No. SEBI/ MIRSD/ CRA/ Cir-01/ 2010 dated January 06, 2010: a. Amalgamation, demerger, consolidation or any other kind of corporate restructuring falling within the scope of section 391 of the Companies Act, 1956 (1 of 1956) or the corresponding provision of any other law for the time being in force; b. Change in Director, including managing director/ whole-time director; c. Change in shareholding not resulting in change in control. 3.5.2 If there is no change during the relevant half year, it shall be indicated in the report. 3.6 Centralized Database for Corporate Bonds/ Debentures ^Circular N....
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....changes, Credit Rating Agencies and Debenture Trustees shall update the same. SECTION 4: INTERNAL AUDIT FOR CREDIT RATING AGENCIES (CRAs) 4.1 Internal Audit for Credit Rating Agencies (CRAs) ^Circular No. SEBI/MIRSD/CRA/Cir-01/2010 dated January 06, 2010 4.1.1 The audit envisaged under Regulation 22 of the SEBI (Credit Rating Regulations), 1999 shall include an internal audit to be undertaken in the following manner: a. It shall be conducted on a half yearly basis. b. It shall be conducted by Chartered Accountants, Company Secretaries or Cost and Management Accountants who are in practice and who do not have any conflict of interest with the CRA. c. It shall cover all aspects of CRA operations and procedures, including investor grievance redressal mechanism, compliance with the requirements stipulated in the SEBI Act, Rules and Regulations made thereunder, and guidelines issued by SEBI from time to time. d. The report shall state the methodology adopted, deficiencies observed, and consideration of response of the management on the deficiencies. e. The report shall include a summary of operations and of the audit, covering the si....
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..... The issuer/ borrower ii. The Company's statutory auditor iii. The borrower's bankers, during interactions with the CRA iv. Debenture Trustees Cases where there are deviations to the checklist shall be documented by the auditor as part of the audit report submitted to the board. f. Review of ratings has been carried out as per the review policy of the CRA. g. Dissents, if any, have been recorded for each committee meeting, as stated in the Operations Manual/ Internal governing document. h. CRA has complied with the timelines for publication of press release/ rating rationale for the ratings assigned, as set out in its Operations Manual/ Internal governing document. i. The Press Releases issued are broadly in line with the standard template prescribed by SEBI. j. Verify the rating disclosures made by the CRAs on their website. k. Comment on the conflict of interest, if any, arising due to composition of the rating committee and participation in the rating committee meetings. 4.2.4 Action on the Internal Audit Report: a. The CRA shall receive the report of the internal audit within ....
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....CORES is to provide a platform for aggrieved investors, whose grievances, pertaining to securities market, remain unresolved by the concerned listed company or SEBI registered Credit Rating Agencies after a direct approach. SCORES also provides a platform, overseen by SEBI through which the investors can approach the concerned listed company or SEBI registered Credit Rating Agencies in an endeavor towards speedy redressal of grievances of investors in the securities market. It would, however, be advisable that investors may initially take up their grievances for redressal with the concerned listed company or SEBI registered Credit Rating Agencies, who are required to have designated persons/ officials for handling issues relating to compliance and redressal of investor grievance. 5.2.2. The salient features of SCORES are: a. Centralized database of all complaints. b. Online movement of complaints to the concerned SEBI registered Credit Rating Agencies c. Online upload of Action Taken Reports (ATRs) by the concerned entities, and d. Online viewing by investors of action on the complaints and its current status. 5.2.3. All SEBI registered Cre....
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....that the complaint is not pending against them. 5.2.9. Failure by SEBI registered Credit Rating Agencies to file ATR under SCORES within thirty days of date of receipt of the grievance shall not only be treated as failure to furnish information to SEBI but shall also be deemed to constitute non-redressal of investor grievance. 5.2.10. The Board of Directors/ Proprietor/ Partner of the SEBI registered Credit Rating Agencies shall be responsible for ensuring compliance with the provisions of this Circular. FORM - B AUTHENTICATION FOR SCORES BY SEBI REGISTERED CREDIT RATING AGENCIES 1. Name of SEBI registered Credit Rating Agency: 2. Nature of registered intermediary: 3. SEBI registration no. 4. PAN of SEBI registered Credit Rating Agency: 5. Date of SEBI registration of Credit Rating Agency: 6. SEBI registration valid upto: 7. Office address of the Credit Rating Agency: 8. The details of the concerned person of the Credit Rating Agency to whom User id and password will be sent: Name: Designation: Email id: (corporate and permanent email id) Mobile no. Telephone No. : Fax No.: Place: Signature: Date: Name: ....
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....ers. 6.1.4. The principles for outsourcing by intermediaries have been framed (placed as Annexure). These principles shall be followed by all intermediaries registered with SEBI. 6.1.5. The SEBI registered Credit Rating Agencies desirous of outsourcing their activities shall not, however, outsource their core business activities and compliance functions. A few examples of core business activities may be - execution of orders and monitoring of trading activities of clients in case of stock brokers; dematerialization of securities in case of depository participants; investment related activities in case of Mutual Funds and Portfolio Managers. Regarding Know Your Client (KYC) requirements, the SEBI registered Credit Rating Agencies shall comply with the provisions of SEBI {KYC (Know Your Client) Registration Agency} Regulations, 2011 and Guidelines issued thereunder from time to time. 6.1.6. The SEBI registered Credit Rating Agencies shall be responsible for reporting of any suspicious transactions / reports to FIU or any other competent authority in respect of activities carried out by the third parties. Annexure PRINCIPLES FOR OUTSOURCING FOR INTERMEDIARIES 1. An i....
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....he intermediary to address such potential conflicts, etc. 2.2 While there shall not be any prohibition on a group entity / associate of the intermediary to act as the third party, systems shall be put in place to have an arm's length distance between the intermediary and the third party in terms of infrastructure, manpower, decision-making, record keeping, etc. for avoidance of potential conflict of interests. Necessary disclosures in this regard shall be made as part of the contractual agreement. It shall be kept in mind that the risk management practices expected to be adopted by an intermediary while outsourcing to a related party or an associate would be identical to those followed while outsourcing to an unrelated party. 2.3 The records relating to all activities outsourced shall be preserved centrally so that the same is readily accessible for review by the Board of the intermediary and / or its senior management, as and when needed. Such records shall be regularly updated and may also form part of the corporate governance review by the management of the intermediary. 2.4 Regular reviews by internal or external auditors of the outsourcing policies, risk management sy....
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....ration of the outsourced arrangements with a single third party; and e) the environment of the foreign country where the third party is located. 5. Outsourcing relationships shall be governed by written contracts / agreements / terms and conditions (as deemed appropriate) {hereinafter referred to as "contract"} that clearly describe all material aspects of the outsourcing arrangement, including the rights, responsibilities and expectations of the parties to the contract, client confidentiality issues, termination procedures, etc. 5.1 Outsourcing arrangements shall be governed by a clearly defined and legally binding written contract between the intermediary and each of the third parties, the nature and detail of which shall be appropriate to the materiality of the outsourced activity in relation to the ongoing business of the intermediary. 5.2 Care shall be taken to ensure that the outsourcing contract: a) clearly defines what activities are going to be outsourced, including appropriate service and performance levels; b) provides for mutual rights, obligations and responsibilities of the intermediary and the third party, including indemnity by th....
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....shall establish and maintain contingency plans, including a plan for disaster recovery and periodic testing of backup facilities. 6.1 Specific contingency plans shall be separately developed for each outsourcing arrangement, as is done in individual business lines. 6.2 An intermediary shall take appropriate steps to assess and address the potential consequence of a business disruption or other problems at the third party level. Notably, it shall consider contingency plans at the third party; co-ordination of contingency plans at both the intermediary and the third party; and contingency plans of the intermediary in the event of non-performance by the third party. 6.3 To ensure business continuity, robust information technology security is a necessity. A breakdown in the IT capacity may impair the ability of the intermediary to fulfill its obligations to other market participants/clients/regulators and could undermine the privacy interests of its customers, harm the intermediary's reputation, and may ultimately impact on its overall operational risk profile. Intermediaries shall, therefore, seek to ensure that third party maintains appropriate IT security and robust disaste....
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....ermediaries are sometimes not aware of the damage which can be caused by circulation of unauthenticated news or rumours. It is a well-established fact that market rumours can do considerable damage to the normal functioning and behaviour of the market and distort the price discovery mechanisms. 6.2.3. In view of the above facts, SEBI registered Credit Rating Agencies are directed that: a. Proper internal code of conduct and controls should be put in place. b. Employees/temporary staff/voluntary workers etc. employed/working in the Offices of SEBI registered CRAs do not encourage or circulate rumours or unverified information obtained from client, industry, any trade or any other sources without verification. c. Access to Blogs/Chat forums/Messenger sites etc. should either be restricted under supervision or access should not be allowed. d. Logs for any usage of such Blogs/Chat forums/Messenger sites (called by any nomenclature) shall be treated as records and the same should be maintained as specified by the respective Regulations which govern the concerned intermediary. e. Employees should be directed that any market related news rec....
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....tandards of integrity in the conduct of their business; c. ensure fair treatment of their clients and not discriminate amongst them; d. ensure that their personal interest does not, at any time conflict with their duty to their clients and client's interest always takes primacy in their advice, investment decisions and transactions; e. make appropriate disclosure to the clients of possible source or potential areas of conflict of interest which would impair their ability to render fair, objective and unbiased services; f. endeavor to reduce opportunities for conflict through prescriptive measures such as through information barriers to block or hinder the flow of information from one department/ unit to another, etc.; g. place appropriate restrictions on transactions in securities while handling a mandate of issuer or client in respect of such security so as to avoid any conflict; h. not deal in securities while in possession of material non - published information i. not to communicate the material non-published information while dealing in securities on behalf of others j. not in any way contribute to manipul....