TaxTMI 
TaxTMI 
Securities and Exchange Board of India (Credit Rating Agencies) (Amendment) Regulations, 2023
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.... Applicability 28A. The provisions of these regulations, except chapters II, III, and IV, shall be applicable to ESG rating providers: Provided that any reference to a "credit rating agency" under chapters I, V, VI and VII shall also be construed as a reference to an "ESG rating provider", as may be applicable: Provided further that the provisions of this Chapter shall only be applicable to ESG rating providers covered in the Fourth Schedule. Definitions 28B. (1) In this chapter, unless the context otherwise requires: - (a) "client" means any person who avails or proposes to avail the services of an ESG rating provider; (b) "environmental, social, and governance ratings", or "ESG ratings" means the rating products that are marketed as opinions about an issuer or a security, regarding its ESG profile or characteristics or exposure to ESG risk, governance risk, social risk, climatic or environmental risks, or impact on society, climate and the environment, that are issued using a defined ranking system of rating categories, whether or not these are explicitly labelled as "ESG ratings"; (c) "ESG rating pr....
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....n in any one of the following categories, namely - (a) Category I; or (b) Category II. Eligibility criteria 28E. For the purpose of the grant of certificate, the applicant shall fulfil the following criteria namely, - (a) the applicant shall be incorporated as a company under the Companies Act, 2013 (18 of 2013); (b) the applicant shall have specified ESG rating activity, as the main object in its Memorandum of Association; (c) the applicant shall have submitted, to the Board, its business plan pertaining to providing ESG ratings, along with the following information, namely - (i) a target breakeven date; (ii) target revenue and the targeted number of clients it plans to service, within two years of obtaining a certificate; and (iii) cumulative cash losses that the applicant projects to incur until the targeted breakeven date, along with the activities or areas in which such losses shall be incurred; Explanation. - The targets mentioned in clause (c) of this regulation shall: A. be set by the applicants themselves; B. be limited to their operations in securities mark....
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....filing the application, has not been - (i) refused by the Board a certificate under these regulations, or (ii) deemed not fit and proper by the Board, or (iii) subject to any enforcement action for a contravention of the Act or of any rules or regulations made under the Act. (l) the grant of certificate to the applicant would be in the interest of investors; (m) the applicant shall have, in case it is seeking registration under Category I, satisfied the following additional criteria, namely - (i) the applicant is a subsidiary of an intermediary registered with the Board, or of ESG rating provider incorporated in a Financial Action Task Force (FATF) member jurisdiction and recognized under their respective law, having a minimum experience of five years in ESG rating of securities or companies; (ii) the promoter of the applicant is: A. a person regulated by any of the financial sector regulators namely, the Board, the Reserve Bank of India, the Insurance Regulatory and Development Authority of India or the Pension Fund Regulatory and Development Authority, subject to the receipt of the relevant approval(s) from t....
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.... be specified by the Board; (n) the applicant shall, in case it is seeking registration under Category II, satisfy the following additional criteria, namely - (i) the applicant shall maintain minimum liquid net worth of rupees ten lakh at all times: Provided that at the time of making the application, the applicant shall have a minimum liquid net worth of the higher of, A. rupees twenty lakhs; or B. addition of rupees ten lakhs and the target on cumulative cash losses until breakeven, as provided by the applicant under these regulations: Provided further that the liquid net worth can be drawn down in terms of the business plan submitted at the time of application for certificate, subject to compliance with these regulations; (ii) the applicant shall have at least two employees specialized across the following areas, at all times: A. governance, B. sustainability, C. social impact or social responsibility, and D. data analytics. Explanation. - For the purposes of this regulations, one employee may be treated as a specialist in at most two of the above areas. A person shall be ....
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..... (c) in case any change in control of the ESG rating provider is proposed, the ESG rating provider shall obtain the prior approval of the Board for continuing to act as such after the change; (d) the ESG rating provider shall at all times maintain the minimum liquid net worth as required under the provisions of these regulations; (e) the ESG rating provider shall pay the requisite registration fees in the manner provided in these regulations; (f) the ESG rating provider shall meet the targets, declared at the time of its application to the Board, within the specified time: Provided that the above shall not be applicable with respect to projections on cumulative cash losses: Provided further that in case that the targets are not achieved, the ESG rating provider shall be required to contribute additional capital or take other remedial measures, as appropriate and as may be specified by the Board, within six months of the date of the corresponding target date, or other such period as may be specified by the Board; (g) the ESG rating provider does not undertake any activity or offer any product or service, except services....
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....er which the ESG rating provider is registered in all its disclosures related to ESG ratings on its website; (e) use terminologies which are relevant and reflective of the characteristics of the ESG ratings product offered and, if the ESG rating provider is an associate or subsidiary of a credit rating agency, the ESG rating provider shall prominently display that ESG ratings are different from credit ratings, through its website and the ESG rating reports; (f) disclose the changes in the ESG rating methodology and consequential changes in ESG ratings on its website; (g) disclose the extent to which a change in ESG rating is on account of the change in the ESG rating methodology; (h) maintain and disclose archives of previous ESG rating methodologies and ESG ratings on its website, in an easily downloadable and machine-readable format, preferably in eXtensible Business Reporting Language; (i) publish its average one-year ESG rating transition rate on its respective website, in a manner as may be specified by the Board; (j) disclose, on its website, the general nature of compensation arrangements with clients and whether the ESG ....
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....the issuer or the security is listed, and on its website, and issue press releases for the information of the investors; (e) have written policies, procedures and internal controls to ensure that the processes and methodologies are rigorous and systematic, are consistently applied, and are periodically reviewed and updated; (f) adopt and implement written policies and procedures to ensure the issuance of high quality ESG ratings based on publicly available information, and if such information is not available publicly, then rely on other information sources using transparent and defined methodologies; (g) have efficient systems to track material developments related to environmental, social and governance factors to ensure timely and accurate ESG ratings; (h) attempt to continually improve information gathering processes in respect of the issuers and securities rated by it; (i) respond to, and address issues flagged by issuers covered by its ESG rating products while ensuring that the same does not compromise the objectivity of the products; and (j) share the draft ESG rating report with the rated issuer or the issuer whose secu....
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....ider shall, while disclosing ESG ratings, also disclose: (a) the definitions of that ESG rating, along with the symbols; and (b) explicitly state that the ESG ratings do not constitute recommendations to buy, hold or sell any securities. Submission of information to the Board 28P. (1) The ESG rating provider shall furnish such information as may be called for, by the Board including any report relating to its activities, within such period as may be specified by the Board. (2) Every ESG rating provider shall, at the close of each accounting period, furnish to the Board copies of its financial statements, in such manner as may be specified by the Board, from time to time. Appointment of Compliance Officer 28Q. (1) The ESG rating provider shall appoint a compliance officer who shall be responsible for monitoring the compliance of all the applicable laws. (2) The compliance officer shall immediately and independently report to the Board of any non-compliance observed by him or her. Maintenance of Books of Accounts records, etc. 28R. (1) Every ESG rating provider shall keep and maintain, for a min....
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.... (a) directly or indirectly, hold ten per cent. or more shareholding or voting rights in any other ESG rating provider, or (b) have representation on the board of directors of any other ESG rating provider: Provided that an ESG rating provider may, with the prior approval of the Board, in the interest of investors, market integrity and stability, acquire shares or voting rights exceeding ten per cent. in any other ESG rating provider if such acquisition results in change in control in the ESG rating provider whose shares are being acquired. (2) A shareholder holding ten per cent. or more shares or voting rights in an ESG rating provider shall not hold ten per cent. or more shares or voting rights, directly or indirectly, in any other ESG rating provider: Provided that the said restriction shall not apply to holdings by pension funds, insurance schemes and mutual fund schemes. Explanation. - For the purpose of these regulations, a "ESG rating provider" means a ESG rating provider registered with the Board. Entities connected with a promoter or a rating agency not to be rated 28V. (1) No ESG rating provider shall....
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.... S. No. Location of ESG Rating Provider Asset class in securities market Location of ESG Rating User Applicability of regulations 1. India Indian India Yes 2. India Indian Outside India No 3. India Global India Yes 4. Outside India Indian India Yes 5. Outside India Indian Outside India No 6. Outside India Global India No FIFTH SCHEDULE [See regulations 28D and 28G] FORMS FORM A Application for grant of Certificate of Registration as an ESG rating provider NAME OF THE APPLICANT: NAME OF THE COMPLIANCE OFFICER: MOBILE NUMDER: EMAIL ID: INSTRUCTIONS FOR FILLING UP FORM - (a) Applicants must submit, to the Board, a completed application form together with appropriate supporting documents. (b) This application form should be filled in accordance with the regulations. (c) Application for registration will be considered, only if it ....
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....any other manner, except for incurring such expense or maintained as part of the liquid net worth. 1.7. Date of incorporation of the applicant (enclose certificate of incorporation and memorandum and articles of association). Specify the following: 1.7.1. Objects (Main and Ancillary) of the applicant company; and 1.7.2. Authorized, issued, subscribed and paid-up capital. 1.8. Structure of the applicant, whether it is incorporated as a company limited by shares or guarantee, private or public, or as an unlimited company. 1.9. Whether the applicant is listed. If yes, names of Stock Exchanges and latest share price to be given. 1.10. Whether the Applicant or its associates are registered with the Board or any other regulatory authority in any capacity, along with details of registration. 1.11. Whether the applicant belongs to or is related to: 1.11.1. any person already in the business of undertaking ESG rating activities 1.11.2. any person proposing to undertake ESG rating activities for the first time. 2. ELIGIBILITY CRITERIA 2.1. Category under which the promoter(s) of the....
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..... BUSINESS INFORMATION OF THE COMPANY 7.1. History, major events and present activities along with details of experience in rating activities and other related activities. 7.2. If the applicant is proposing to engage in ESG rating activities for the first time, business plan of the company with projected volume of activities and income for which registration is sought. 7.3. Rating activities handled during the last three years as per the table below: Name of Client Size of Issue Year of Issue Security/Instrument Rated listed/unlisted 7.4 Details of other rating activities undertaken during last three years. 7.5. Any other information considered relevant to the nature of services rendered by the applicant 8. FINANCIAL INFORMATION ABOUT THE APPLICANT 8.1. Liquid Net worth (rupees in lakhs) Items Year prior to the preceding year of the current year Preceding year Current year (a) Paid-up equity capital  ....
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....ficate of Registration as an ESG rating provider I. In exercise of the powers conferred by sub-section (1) of section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), read with the rules and regulations made thereunder, the Board hereby grants a certificate of registration to _______________________________________________ as an Environmental, Social, and Governance (ESG) rating provider, under Category-___________, in accordance with and subject to the conditions in the regulations to carry out the activity of the ESG rating provider: - II. Registration Code for the ESG rating provider is IN/ERP/(Category)/__________. III. This certificate of registration shall be valid till it is suspended or cancelled by the Board. Place: Date By Order __________ For and on behalf of Securities and Exchange Board of India SIXTH SCHEDULE [See regulations 28C and 28G] FEES FOR ESG RATING PROVIDERS PART A Amount to be paid as fees Sr. No. Particulars Fees payable 1. Application fee for grant of registration 50,000 2. Registration Fees (a) Category I (b) Category II (a) 10....
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....onmental, social or governance characteristics of the rated issuers or their securities. 10. An ESG rating provider shall, wherever necessary, disclose to the client, all possible sources of conflict of duties and interests, which could impair its ability to make fair, objective and unbiased ratings. 11. An ESG rating provider shall ensure that no conflict of interest exists between any member participating in the rating analysis, and that of the person who is being rated or whose securities are being rated. 12. An ESG rating provider shall not make any exaggerated statement, whether oral or written, to the client either about its qualification or its capability to render any services or its achievements with regard to the services rendered to other clients. 13. An ESG rating provider shall not make any untrue statement, suppress any material fact or make any misrepresentation in any documents, reports, papers or information furnished to the Board, stock exchange or public at large. 14. An ESG rating provider shall promptly inform the Board about any action, legal proceedings etc., initiated against it alleging any material breach or non....
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....ly basis. 23. An ESG rating provider shall ensure that good corporate policies and corporate governance are adopted and followed. 24. ESG rating provider shall not, generally and particularly, in respect of issuers or securities rated by it, be party to or instrumental for- (a) creation of false market; (b) price rigging or manipulation; or (c) dissemination of any unpublished price sensitive information in respect of securities which are listed and proposed to be listed in any stock exchange, unless required, as part of rationale for the rating accorded." BABITHA RAYUDU, Executive Director [ADVT.-III/4/Exty./246/2023-24 Footnote: 1. The Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999 were issued under S.O. No. 547 (E) dated July 7, 1999 published in the Gazette of India. 2. The Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999 were subsequently amended on- a. March 28, 2000 by the Securities and Exchange Board of India (Appeal to Securities Appellate Tribunal) (Amendment) Regulations, 2000 published in Official Gazette vide S.O. No. 278(E). ....