The Indian securities regulator plans to introduce new rules which would enable credit rating agencies to assess financial products that operate outside their regulatory area for the purpose of expanding oversight while preserving jurisdictional limits.
The Securities and Exchange Board of India (SEBI) released a consultation paper which proposes that ratings firms should be allowed to evaluate instruments subject to other financial regulators including unlisted securities. The paper requires agencies to create separate units within six months when they take on such mandates.
The proposal requires these ratings arms to maintain independent operations from SEBI-regulated instrument assessment teams to prevent conflicts of interest. The fees for non-SEBI-rated products need to be separately charged.
The new regulatory approach under Tuhin Kanta Pandey’s leadership as SEBI chairman demonstrates increased flexibility. The new policy emerges from initiatives to improve financial market oversight and increase transparency in credit practices throughout India’s financial system.
The consultation paper from SEBI indicates that the industry has provided positive feedback about enabling credit rating agencies to provide ratings for financial instruments overseen by different regulators.
The proposal now invites industry feedback which could lead to a major transformation of India’s current regulatory structure if approved.
