The Securities and Exchange Board of India (“SEBI”), in the exercise of its powers conferred under Section 30 read with Section 11 of the Securities and Exchange Board of India Act, 1992, vide Circular No. SEBI/LAD-NRO/GN/2025/242,[1] dated April 22, 2025, issued the SEBI (Credit rating Agencies) (Second Amendment) Regulations, 2025. The provisions laid down hereunder shall come into effect immediately.
Key Amendments to the SEBI (Credit Rating Agencies) Regulations, 1999 (“CRA Regulations”)
I. Clarification of Subscriber-Pays Model (Regulation 28(B)(1))
A new clause (g) inserted has been inserted under the Regulation 28(B)(1) of the CRA Regulations to include the definition for‘Subscriber-pays business model’. It shall mean a business model where the Environmental Social and Governance (“ESG”) rating provider derives its revenues from ESG ratings from subscribers including banks, insurance companies, pension funds, or the rated entity itself.
II. Expanded Scope and Exemptions
A proviso has been added to Regulation 28(H)(g) of the CRA Regulations stating that the ESG Rating Providers shall be permitted to carry out ESG ratings under respective financial sector regulators’ guidelines. The ratings conducted under other regulators’ guidelines fall under that regulator’s purview. Entities rating only non-SEBI-regulated issuers/ products shall not be required to register with SEBI.
III. Disclosure Requirement
A new Clause (s) has been inserted to Regulation 28(K) of the CRA Regulations, stating that ESG rating providers must disclose on their website the financial sector regulator or authority under which they conduct ESG ratings and must comply with applicable laws of that regulator.
IV. Requirements for Subscriber-Pays Model
A new regulation 28KA has been inserted under the CRA Regulations to include that an ESG rating provider following a subscriber-pays model must ensure:
- Ratings to be based only on publicly available information
- If the rated entity/group company is a subscriber, their fee must be the lowest among all subscribers
- Only regulated group companies/ associates, whose core business requires ESG ratings, may subscribe, without conflict of interest or misuse
An ESG Rating Provider following subscriber-pays model under Regulation 28L(1)(j) of the CRA Regulations must:
- Share the ESG rating report simultaneously with subscribers and the rated entity; provide 2 (two) working days for comments.
- Include all comments in an addendum, and if differing viewpoints exist, either revise the report or issue an addendum with clarifications.
- Disclose its policy on sharing rating reports and timelines on its website.
- Provide a clarification facility for rated entities on methodology or assumptions.
[1]https://www.sebi.gov.in/legal/regulations/apr-2025/securities-and-exchange-board-of-india-infrastructure-investment-trusts-second-amendment-regulations-2025_93590.html