SEBI Consultation Paper Summary - Proposed Measures for Regulating Credit Rating Agencies (CRAs) - July 2025

A summary of SEBI's proposals to expand the regulatory scope for CRAs and enhance investor protection.

Executive Summary

The Securities and Exchange Board of India (SEBI) has released a Consultation Paper in July 2025, proposing significant amendments to the SEBI (Credit Rating Agencies) Regulations, 1999. The primary objective is to introduce measures for regulating activities of Credit Rating Agencies (CRAs) that are not currently under SEBI's direct purview. This initiative stems from industry feedback requesting CRAs be permitted to rate financial products/instruments overseen by other Financial Sector Regulators (FSRs), even in the absence of specific rating guidelines from those FSRs (e.g., unlisted securities). SEBI believes this expansion could create synergies and address industry gaps. The paper outlines detailed conditions for CRAs undertaking such non-SEBI regulated activities, focusing on compliance with FSR frameworks, strict segregation of business units, enhanced transparency, and robust investor disclosures. Public comments on these proposals are invited until July 30, 2025.

I. Objective and Background

The consultation paper aims to gather public comments on proposed amendments to the SEBI (Credit Rating Agencies) Regulations, 1999. Currently, CRAs are generally restricted to rating listed or proposed-to-be-listed securities, or financial instruments under the specific guidelines of a Financial Sector Regulator (FSR). However, SEBI has received feedback from stakeholders regarding the rating of financial products/instruments under other FSRs where no specific rating guidelines exist. The proposals seek to address this gap, allowing CRAs to undertake such activities, which are considered adjacent to their core business and could offer significant synergies.[1]

II. Key Proposals for Regulation of CRA Activities

SEBI proposes to permit CRAs to undertake activities not regulated by SEBI, subject to the following stringent conditions:[1]

• **Compliance with FSR Frameworks:** CRAs must comply with any regulatory framework specified by the respective FSR (e.g., RBI, IRDA, PFRDA, IFSCA, MCA, IBBI) for policy, eligibility, risk management, grievance handling, inspection, enforcement, and claims related to the rated instruments.[1]
• **Fee-based and Non-fund Based Activities:** Only fee-based and non-fund based rating activities are permitted.[1]
• **Segregation via Separate Business Units (SBUs):** Non-SEBI regulated activities must be conducted at arm's length through one or more SBUs, segregated by a "Chinese Wall" and ring-fenced from SEBI-regulated activities.[1]
• **Transition Period for Segregation:** CRAs must transfer these activities to separate business unit(s) within six months of the proposal's notification.[1]
• **Separate Grievance Redressal:** The grievance redressal mechanism for non-SEBI regulated activities must be part of the SBU and distinct from that for SEBI-regulated activities.[1]
• **Separate Records and Staff:** SBUs must maintain separate records and distinct staff for non-SEBI regulated activities. While staff can cross the Chinese Wall with Board approval and documentation, key managerial personnel are exempt from this segregation.[1]
• **Shared Resources:** Other resources, including IT infrastructure, may be shared if approved by the CRA's Board of Directors.[1]
• **Ring-fencing Net Worth:** The CRA's minimum net worth must be ring-fenced from any impact arising from non-SEBI regulated activities.[1]
• **Website Disclosure:** CRAs must disclose on their website a list of non-SEBI regulated activities, along with a disclaimer that SEBI investor protection mechanisms are not available for grievances related to these activities. This disclosure must also be prominently displayed in relevant rating reports.[1]
• **Separate Advertising and Webpage:** Advertising, marketing material, and webpages for non-SEBI regulated activities must be separate and distinct from those for regulated activities.[1]
• **Upfront Written Disclosure to Stakeholders:** Before undertaking non-SEBI regulated activities, CRAs must provide upfront written disclosure to clients and other stakeholders, stating that such activities do not fall under SEBI's regulatory purview. Confirmation of understanding must be obtained from stakeholders. For existing arrangements, compliance reports must be submitted to SEBI within six months.[1]
• **Half-yearly Internal Audit Report Undertaking:** CRAs undertaking non-SEBI regulated activities must submit an undertaking in their half-yearly internal audit report, confirming compliance with these regulations, reviewed and approved by their Board of Directors.[1]

III. Public Comments and Timeline

SEBI invites comments, views, and suggestions from the public on these detailed proposals. The deadline for submitting comments is **July 30, 2025**. Comments should be submitted through the online web-based form provided on the SEBI website. Instructions on the link should be reviewed before submission. For technical issues, contact Ms. Nishtha Tewari, AGM, via email.[1]

Works Cited

• 1 Consultation Paper on Measures for Regulation of Activities of Credit Rating Agencies (CRAs), https://www.sebi.gov.in/reports-and-statistics/reports/jul-2025/consultation-paper-on-measures-for-regulation-of-activities-of-credit-rating-agencies-cras-_95142.html

Disclaimer: This information is for educational purposes only. It is not financial advice. Investing involves risk. Always consult with a qualified financial advisor before making any investment decisions.