TMI BlogSecurities and Exchange Board of India (Credit Rating Agencies) (Amendment) Regulations, 2023X X X X Extracts X X X X X X X X Extracts X X X X ..... RATING PROVIDERS 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 provider means a person which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility 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 markets, i.e. related to issuers that are listed, or proposed to be listed, or whose securities are listed or proposed to be listed, on a recognized stock exchange; and C. be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the concerned regulator or authority; or B. a foreign ESG rating provider incorporated in the jurisdiction of a member of the Financial Action Task Force (FATF) and recognized under their respective law, having a minimum experience of five years in the business of providing ESG rating of securities or companies; or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akhs 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 considered as specialized in an area if such person possesses any of the following: (a) has relevant work experience of not less than five years in the specified area; or (b) a professional qualification in the specified area from a university or an institution recognized by the Central Government or any State Government or a foreign university; or (c) any other qualification as may be specified by the Board; (o) any other criteria, as may be specified by the Board, from time to time. Furnis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 related to ESG ratings in accordance with these regulations or such other products, services or activities as may be specified by the Board or activities incidental to such activities. Procedure where certificate is not granted 28I. (1) If, after considering an application made under this Chapter, the Board is of the opinion that a certificate should not be granted, it may, after giving the applicant a reasonable opportunity of being heard, reject the application. (2) The decision of the Board, not to grant certificate under sub-regulation (1), shall be communicated by the Board to the applicant within a period of thirty d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain 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 ratings assigned were solicited or unsolicited; (k) take other measures that the Board may consider material for a true and fair understanding of the ESG rating; (l) identify, disclose, and to the extent possible, avoid or appropriately mitigate potential conflicts of interest; (m) formulate policies and internal codes of conduct for dealing with conflicts of interest and prominently disclose the policies on its website; (n) identify, disclose and, to the extent possible, mitigate potential conflict of interest that may arise between ESG rating provider and its clients or client groups, or between multiple clients, or between the rated issuer or issuer whose securities are being rated and other clients or client groups, or b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 securities are being rated, before publication of the same: Provided that the ESG rating provider shall grant an opportunity of appeal and representation, if requested for by the issuer. (2) The ESG rating provider shall continuously monitor the rating of a client, unless the rating is withdrawn in such manner as may be specified by the Board. Procedure for review of ESG rating 28M. (1) The ESG rating provider shall annually, or if required, more frequently, review each of the published ESG ratings, unless the ESG rating is withdrawn in accordance with these regulations. (2) The ESG rating provider shall not withdraw an ESG rating except in cases where the rated issuer, or the issuer whose security is rated, is wound up or merged or amalgamated with another company, or except in cases as may be specified by the Board from time to time. (3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 minimum period of five years, the following books of accounts, records and documents, namely (a) copy of its financial statements as on the end of each accounting period; (b) a copy of the auditor s report on its accounts for each accounting period; (c) a copy of the agreement entered into with each client, if applicable; (d) information supplied by each of the clients, if applicable; (e) correspondence with each client; (f) ESG ratings assigned to various issuers or securities including up- gradation and down gradation (if any) of the ratings so assigned; (g) ESG rating notes and other documents which state the rationale or form the basis for assigning an ESG rating; (h) letter or reports or press releases or disclosures assigning ESG ratings; (i) particulars of fees charged for ESG ratings; and (j) such other records as the Board may specify from time to time. (2) Every ESG rating provider shall intimate to the Board the place where the books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy not to be rated 28V . (1) No ESG rating provider shall, rate an issuer or securities of any issuer, which is a borrower of its promoter or a subsidiary of its promoter or an associate of its promoter, if (a) there are any common Chairpersons, or directors between the ESG rating provider and the borrower or the subsidiary or the associate of the promoter; or (b) there are common employees between the ESG rating provider and the borrower or the subsidiary or the associate of the promoter. (2) No ESG rating provider shall, rate an issuer or securities of any issuer, which is its promoter; (3) An ESG rating provider shall neither assign any ESG rating to an issuer promoted by it or its associates, nor rate securities of such issuers. (4) No ESG rating provider shall rate an issuer or securities of such issuer, if the ESG rating provider has a Chairperson, director or employee who is also a Chairperson, director or employee of the issuer: Provided that the ESG rating provider may, subject to the provisions of sub-regulation (1) rate an entity having a common independent director if, (a) the independent director does not participate in the discussions on ES ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is complete in all respects. (d) All answers must be typed. (e) Information which needs to be supplied in detail may be given on separate sheets which should be attached with the application form. (f) All signatures on the application must be original. (g) Every page of the form as well as every additional sheet must be signed by the authorized signatory of the applicant. (h) Application must be accompanied by an application fee as specified in Sixth Schedule to these regulations. (i) All mentions of ratings in this Schedule shall be deemed to refer to ESG ratings, unless the context otherwise specifies. 1. PARTICULARS OF THE APPLICANT 1.1. Name, address of the registered office, address for correspondence, mobile number(s), email address of the Applicant. Address of branch offices, if any. 1.2. Name, mobile number and email address of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time. 2. ELIGIBILITY CRITERIA 2.1. Category under which the promoter(s) of the applicant belong to (refer regulation 28E). 2.2. Names of the promoters and their shareholding in the applicant. 2.3. Enclose a certificate obtained from a Chartered Accountant certifying the net worth requirements of the promoter, if applicable. 2.4. Liquid net worth of the applicant as per the last audited accounts, not earlier than three months from the date of application along with a certificate obtained from a Chartered Accountant certifying the same. 3. PARTICULARS OF DIRECTORS/KEY PERSONNEL 3.1. Particulars of directors of the applicant, including the name, qualification, experience, shareholding in the applicant and directorship in other bodies corporate along with copies of identity proofs and address proofs of the directors. 3.2. Particulars of key personnel of the applicant, including the name, designation in the applicant, qualification, and previous positions held, experience, date of appointment in the applicant and functional areas. 4. INFRASTRUCTURE 4.1. Details of infrastructure including computing facilities, office space, equipment, manpower, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preceding year of the current year Preceding year Current year (a) Paid-up equity capital (b) Free reserves (excluding reserves created out of revaluation) Total (a) + (b) (c) Accumulated Losses (d) Deferred expenditure not written off, including miscellaneous expenses not written off Net worth (a) + (b) - (c) (d) 8.2. Please enclose audited annual accounts for the last three years. Where unaudited reports are submitted, give reasons. If minimum liquid net worth Requirement has been met after last audited annual accounts, audited statement of accounts of a later date shall also be submitted. 8.3. Provide a declaration that the liquid net worth of the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) 10,00,000 (b) 1,00,000 3. Recurring registration fee (For every three years) (a) Category I (b) Category II (a) 5,00,000 (b) 50,000 PART B 1. An ESG rating provider who has been granted a certificate, shall pay fees, as specified under item 2 of Part A, within fifteen days from the date of receipt of intimation from the Board. 2. An ESG rating provider who has been granted a certificate shall, to keep its registration in force, pay fee as specified under item 3 of Part A, every three years from the sixth year of the date of grant of certificate. 3. The fee specifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty 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-compliance by it, of any of the laws, rules, regulations to which it is subject, and of directions of the Board or of any other regulatory body. 15. An ESG rating provider shall maintain an appropriate level of knowledge and competence and abide by the provisions of the Act, regulations and circulars, which may be applicable and relevant to the activities carried on by the ESG rating provider. 16. An ESG rating provider shall ensure that there is no misuse of any privileged information including prior knowledge of ESG rating decisions or changes. 17. An ESG rating provider or any of its employees shall not render, directly or indirectly any investment advice about any security being rated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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). b. May 29, 2001, by the Securities and Exchange Board of India (Investment Advice by Intermediaries) (Amendment) (Regulations), 2001 vide S.O. No. 476 (E). c. September 27, 2002 by the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 vide No. S.O. No.1045 (E). d. February 19, 2003 by the Securities and Exchange Board of India (Credit Rating Agencies) (Amendment) Regulations, 2003 vide S.O. No. 203 (E). e. October 1, 2003 by the Securities and Exchange Board of India (Credit Rating Agencies) (Second Amendment) Regulations, 2003 vide S.O. No. 1160 (E). f. March 10, 2004 by Securities and Exchange Board of India (Criteria for Fit and Proper Person) Regulations, 2004 vide S. O. No. 398 (E). ..... X X X X Extracts X X X X X X X X Extracts X X X X
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