SEBI Proposes To Allow Credit Rating Agences Assess Financial Instruments That Are Outside Its Regulation

10th July 2025: In its latest proposal, the capital markets regulator, SEBI, intends to allow CRAs (Credit Rating Agencies) to assess financial instruments outside of its direct regulatory jurisdiction. The purpose of this move is linked to the regulator’s efforts to create better investor awareness, as it will provide access to ratings on a broader set of instruments, aiding informed decisions.

This was flagged as a regulatory gap in the consultation paper, with several instruments (e.g., unlisted debt, pension bonds) lacking clear rating rules. With the proposal, CRAs will be able to rate non–SEBI–regulated instruments, such as those under the RBI, IRDA, and PFRDA, among others.

The development was detailed in a consultation paper released on Wednesday, July 9, 2025.

New Framework Under Discussion

Under the proposed framework, agencies that plan to expand their rating services to such instruments will be required to establish a separate operational unit within six months. This unit must operate independently and maintain an arm’s length relationship with businesses that rate SEBI-regulated entities. Additionally, the agencies will be required to charge fees for these ratings.

Rationale and Industry Feedback

The move is seen as a response to consistent industry feedback seeking permission to rate instruments governed by other financial regulators. This includes assets such as unlisted securities that currently fall outside the regulatory domain of SEBI.

The proposal reflects a more pragmatic approach under the leadership of SEBI’s new chairman, Tuhin Kanta Pandey, who has also introduced a series of regulatory relaxations since taking office.

Outlook

If implemented, this framework could significantly expand the scope of work for rating agencies, offering them new business avenues while ensuring regulatory integrity through structural separation. The consultation paper is open for public feedback and is expected to shape future regulatory amendments.

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