Securities and Exchange Board of India (SEBI) on Wednesday mandated credit rating agencies to formulate a policy on firewall practices with non-rating entities and document the same in their internal operational manuals.

Such a policy will have to be ratified by the board of directors of the CRAs, SEBI said in a circular.

A CRA should disclose on its web site, details of any common director or CEO or MD between the CRA and the non-rating entity. “Such disclosure should be updated by the CRA on the first working day of each month,” SEBI circular added. The disclosure should include a reference to the date it was last updated by the CRA, along with a reference or hyperlink to archives of previous such disclosures.

The policy on firewall practices must cover the nature and extent of sharing of infrastructure, employees and resources between the CRA and the non-rating entity, including specification on whether such arrangement is temporary, SEBI said.

Guidance to staff

To mitigate any conflict of interest, the policy should have guidance to employees on sharing of information and resources between the CRA and the non-rating entity. Besides, the policy needs to cover measures taken by CRA to ensure the independence of its credit-rating process in view of this arrangement with the non-rating entity, the circular added.

Also, the web sites of registered CRAs and their non-rating entities should be separate, the regulator said. The new norms will be applicable from January 1, 2023.