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This master circular consolidates regulatory requirements for credit rating agencies operating within International Financial Services Centres, covering registration, permissible activities, governance, operational standards, ESG ratings, and valuation services. Credit rating agencies registered under the Capital Market Intermediaries Regulations must comply with board composition rules, maintain internal operations manuals, follow structured rating processes, enforce confidentiality controls, and submit quarterly reports. The framework permits credit rating agencies to provide credit ratings, sovereign ratings, Environmental, Social and Governance ratings, valuation services, and research activities.
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IFSCA-PLNP/40/2024-Capital Markets October 01, 2024
To,
All Credit Rating Agencies in the IFSC All Recognised Stock Exchanges in the IFSC
Madam/Sir,
Sub: Master Circular for Credit Rating Agencies
The IFSCA (Capital Market Intermediaries) Regulations, 2021 (“CMI Regulations”) provide the regulatory framework for credit rating agencies registered with International Financial Services Centres Authority (“the Authority”) providing requirements inter alia relating to registration, general obligations and responsibilities, specific obligations and responsibilities, inspection etc.
Regulation 73(5) of the CMI Regulations provide that - “The circulars and guidelines issued by SEBI in relation to the regulations specifically covered under sub-regulation (2) and applicable to a capital market intermediary in an IFSC, shall be deemed to have been issued under these regulations unless and until they are superseded or modified by the Authority”.
Subsequently, the Authority has issued following circulars relating to Credit Rating Agencies:
It has been decided that the master circular placed at Annexure - 1 is being issued superseding all the circulars and guidelines issued by SEBI (prior to October 01, 2020) in respect of credit rating agencies registered with the Authority in accordance with the provisions of regulation 73(5) of the CMI Regulations. Further, the master circular is a compilation of the circulars mentioned at paragraph 3 above.
This master circular is being issued in exercise of powers conferred by Sections 12 and 13 of the International Financial Services Centres Authority Act, 2019 and regulation 72 of the IFSCA (Capital Market Intermediaries) Regulations, 2021.
A copy of this circular is available on the website of the International Financial Services Centres Authority at www.ifsca.gov.in.
Yours faithfully,
Arjun Prasad General Manager arjun.pd@ifsca.gov.in
CHAPTER – 1: REGISTRATION PROCESS .........................................................................................5 SWIT System.....................................................................................................................................5 Payment of Fees...............................................................................................................................5 SEBI-registered Credit Rating Agencies......................................................................................5 CHAPTER - 2: PERMISSIBLE ACTIVITIES.........................................................................................6 Permissible Activities.....................................................................................................................6 CHAPTER - 3: GOVERNANCE..............................................................................................................7 Composition of Board of Directors ..............................................................................................7 Code of Conduct...............................................................................................................................7 CHAPTER - 4: CREDIT RATING ACTIVITIES....................................................................................8 Operations Manual .........................................................................................................................8 Rating Criteria .................................................................................................................................8 Rating Process .................................................................................................................................8 Sovereign Ratings............................................................................................................................9 Rating Scales ....................................................................................................................................9 Monitoring and Review of Ratings...............................................................................................9 Dissemination of Ratings.............................................................................................................10 Withdrawal of rating ....................................................................................................................10 Rating Committee..........................................................................................................................11 Request by Issuers for review/appeal of ratings provided by CRAs ..................................11 Rating Analysts..............................................................................................................................11 Confidentiality ...............................................................................................................................11 Independence and Avoidance of Conflicts of Interest ...........................................................11 Prohibition on Trading ................................................................................................................12 Periodic Disclosures.....................................................................................................................13 Continuous Disclosures ...............................................................................................................13 Guidelines/Policies.......................................................................................................................13 CHAPTER - 5: ESG RATINGS AND DATA PRODUCTS PROVIDERS.............................................14 Introduction...................................................................................................................................14 Permitted Services........................................................................................................................14 Code of Conduct.............................................................................................................................15 ESG Ratings Process......................................................................................................................16 Annual Audit ..................................................................................................................................16 Segregation.....................................................................................................................................16 Continuous Disclosures ...............................................................................................................16 Power to call for information .....................................................................................................16 Maintenance of books of account, records and other documents.......................................17 CHAPTER - 6: VALUATION SERVICES.............................................................................................18 Valuation Services under IFSCA (Fund Management) Regulations, 2022 .........................18 CHAPTER - 7: REPORTING ...............................................................................................................19 Reporting........................................................................................................................................19
IFSCA has operationalised Single Window IT System (SWIT System), which can be accessed at https://swit.ifsca.gov.in/, for intermediaries, inter-alia for CRAs, to submit all the registration applications online. IFSCA’s SWIT System includes online application for registration, processing of application, grant of final registration, etc., link for SWIT system is also available on IFSCA website – www.ifsca.gov.in.
An entity desirous of seeking registration as Credit Rating Agency with the Authority shall file an application through the SWIT System.
Securities and Exchange Board of India, vide circular dated July 19, 2024 on “Enabling Credit Rating Agencies to undertake rating activities under IFSCA” permitted credit rating agencies registered with SEBI to undertake rating activities in the IFSC in accordance with regulation 9(f) of the SEBI (Credit Rating Agencies) Regulations, 1999 (“SEBI CRA Regulations”) and para 25 of the Master Circular for CRAs dated May 16, 2024. The Explanation provided under regulation 9(f) of the SEBI CRA Regulations provides that - “…the ratings undertaken by a credit rating agency under the respective guidelines of a financial sector regulator or authority shall be under the purview of the respective financial sector regulator or authority”.
Accordingly, a credit rating agency registered with SEBI, desirous of providing rating services in the IFSC, shall apply for registration with IFSCA in accordance with the requirements provided under the IFSCA (Capital Market Intermediaries) Regulations, 2021 (“CMI Regulations”), as amended from time to time. The activities of the CRAs operating in the IFSC shall be subject to the requirements in the IFSCA Act, 2019, CMI Regulations and other applicable regulations and circulars notified by IFSCA from time to time. The application shall be filed through the SWIT System.
Provided that the CRA shall undertake the activities in accordance with the norms and requirements specified by the Authority from time to time.
1 As defined in the IFSCA (Capital Market Intermediaries) Regulations 2021
Provided that a CRA registered in the form of branch shall also comply with the governance requirements specified by the home regulator.
The CRA shall establish a board approved Code of Conduct based on Schedule III of the International Financial Services Centres Authority (Capital Market Intermediaries) Regulations, 2021 and the IOSCO Report on Code of Conduct Fundamentals for Credit Rating Agencies, March 2015.
The CRA shall ensure that the Code of Conduct is publicly and prominently disclosed on its website:
