The Securities and Exchange Board of India (SEBI) released a consultation paper on July 9, 2025, proposing that Credit Rating Agencies (CRAs) be allowed to rate financial instruments overseen by other regulators, including unlisted securities—a domain currently outside SEBI’s direct authority (Reuters).
Key Proposals
- New Scope for CRAs: SEBI’s current rules restrict CRAs to rating listed or proposed-to-list securities. The proposed changes would allow extension into non-SEBI-regulated products, provided CRAs comply with relevant financial sector regulator (FSR) frameworks such as RBI, IRDAI, PFRDA, IBBI, MCA, or IFSCA (TaxGuru).
- Strict Compliance Conditions:
- Ratings must be strictly fee-based and non-fund-based.
- CRAs must establish separate business units (SBUs) within 6 months and maintain an operational “Chinese Wall” between SEBI-regulated and non-SEBI activities (Reddit, 5paisa).
- Entities must disclose non-SEBI activities on their websites and clearly state that SEBI protections do not apply.
- Staffing, grievance mechanisms, and net worth buffers must be strictly segregated to avoid conflicts (TaxGuru).
Strategic Implications
- Closes a Critical Regulatory Gap: Unlisted corporate debt, securitised assets, and bespoke financial instruments lacked formal CRA coverage earlier. This move enables ratings for such instruments under regulated conditions.
- Enhances Investor Transparency: Standardised ratings and procedural safeguards are expected to improve risk assessment and market trust in sectors previously beyond CRA reach.
- Regulatory Alignment & Flexibility: SEBI’s shift reflects its broader reform agenda—maintaining oversight while enabling innovation across India’s financial ecosystem.
Source (full link):
https://www.livemint.com/news/sebi-proposes-broadening-credit-rating-agencies-mandate-amid-regulatory-gaps-rbi-cra-financial-sector-stock-exchanges-11752068671692.html
Disclaimer:
This article is not authored or drafted by any employee of FinMen Advisors. The information is entirely sourced from the above news link. FinMen Advisors does not take responsibility for the accuracy, completeness, or reliability of the information.
