SEBI Moves to Broaden CRA Mandate with New Oversight Rules for Unregulated Instruments
By Shishta Dutta | Published at: Jul 9, 2025 05:25 PM IST
Mumbai, 9 July 2025: In a significant regulatory step, the Securities and Exchange Board of India (SEBI) has unveiled a consultation paper proposing an expanded role for Credit Rating Agencies (CRAs), especially in rating financial instruments currently outside SEBI’s regulatory framework. Public comments on the proposed changes have been invited until 30 July 2025.
SEBI Targets Gaps in Rating Oversight Across Financial Instruments
To close long-standing regulatory gaps, SEBI plans to amend the SEBI (Credit Rating Agencies) Regulations, 1999. This amendment will enable CRAs to rate instruments governed by other Financial Sector Regulators (FSRs), even where no formal rating guidelines currently exist. The proposal comes in response to growing industry demand for clarity and regulatory permissions for ratings beyond SEBI’s domain, including unlisted debt instruments and issuer-level assessments.
Proposed Rules to Permit Wider CRA Role Under Strict Conditions
The new framework would authorise CRAs to conduct credit ratings in non-SEBI domains, but only under clearly defined safeguards. Here are the key proposals:
| Measure | Details |
|---|---|
| Permitted Activities | Rating of instruments under other FSRs, even where no rating framework exists. |
| Scope of Ratings | Only fee-based and non-fund-based activities allowed. |
| Structure | Must be conducted through a Separate Business Unit (SBU) with a Chinese Wall. |
| Staff Separation | Personnel for SEBI and non-SEBI activities must be segregated, barring key managerial roles. |
| IT & Infra Sharing | Permitted with board-approved protocols. |
| Disclosure Mandate | CRAs must publish list of non-SEBI activities with disclaimers on investor protection mechanisms. |
| Client Notification | Written disclosures and acknowledgments from clients confirming understanding of risks and lack of SEBI protections. |
| Compliance Reporting | Bi-annual audit-based undertakings approved by CRA boards. |
Six-Month Window for CRAs to Comply with New Structure
CRAs will be required to complete structural adjustments within six months of SEBI notifying the changes. This includes creating ring-fenced SBUs for non-SEBI operations, informing existing clients of the revised framework, and submitting a compliance report to SEBI.
SEBI Seeks Stakeholder Views on Scope and Safeguards
To finalise the changes, SEBI has posed two questions for public input:
- Should CRAs be permitted to rate instruments under other FSRs even without existing rating frameworks?
- Are the twelve proposed safeguards (as outlined in Paras 2.3.1–2.3.12 of the paper) adequate for investor protection?
Stakeholders are encouraged to submit their responses via SEBI’s online portal by 30 July 2025.
Current CRA Framework Limits Non-SEBI Activities
Under present regulations, CRAs are restricted from engaging in activities not explicitly permitted by SEBI or other FSRs. Their primary role is limited to rating listed or soon-to-be-listed instruments. The proposed reforms aim to offer CRAs operational flexibility while maintaining strict investor safeguards.
REF: 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
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