Schedule III - Code of conduct - Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999

1 [THIRD SCHEDULE SECURITIES AND EXCHANGE BOARD OF INDIA CODE OF CONDUCT FOR CREDIT RATING AGENCIES [REGULATION 13] CODE OF CONDUCT 1. A credit rating agency shall make all efforts to protect the interests of investors. 2. A credit rating agency, in the conduct of its business, shall observe high standards of integrity, dignity and fairness in the conduct of its business. 3. A credit rating agency shall fulfill its obligations in a prompt, ethical and professional manner. 4. A credit rating agency shall at all times exercise due diligence, ensure proper care and exercise independent professional judgment in order to achieve and maintain objectivity and independence in the rating process. 5. A credit rating agency shall have a reasonable and adequate basis for performing rating evaluations, with the support of appropriate and in depth rating researches. It shall also maintain records to support its decisions. 6. A credit rating agency shall have in place a rating process that reflects consistent and international rating standards. 7. A credit rating agency shall not indulge in any unfair competition nor shall it wean away the clients of any other rating agency on assurance of higher rating. 8. A credit rating agency shall keep track of all important changes relating to the client companies and shall develop efficient and responsive systems to yield timely and accurate ratings. Further a credit rating agency shall also monitor closely all relevant factors that might affect the creditworthiness of the issuers. 9. A credit rating agency shall disclose its rating methodology to clients, users and the public. 10. A credit rating agency shall, wherever necessary, disclose to the clients, possible sources of conflict of duties and interests, which could impair its ability to make fair, objective and unbiased ratings. Further it shall ensure that no conflict of interest exists between any member of its rating committee participating in the rating analysis, and that of its client. 11. A credit rating agency shall not make any exaggerated statement, whether oral or written, to the client either about its qualification or its capability to render certain services or its achievements with regard to the services rendered to other clients. 12. A credit rating agency shall not make any untrue statement, suppress any material fact or make any misrepresentation in any documents, reports, papers or information furnished to the board, stock exchange or public at large. 13. A credit rating agency shall ensure that the Board is promptly informed about any action, legal proceedings etc., initiated against it alleging any material breach or non-compliance by it, of any law, rules, regulations and directions of the Board or of any other regulatory body. 14. A credit rating agency shall maintain an appropriate level of knowledge and competence and abide by the provisions of the Act, regulations and circulars, which may be applicable and relevant to the activities carried on by the credit rating agency. The credit rating agency shall also comply with award of the Ombudsman passed under the Securities and Exchange Board of India (Ombudsman) Regulations, 2003. 15. A credit rating agency shall ensure that there is no misuse of any privileged information including prior knowledge of rating decisions or changes. 16. (a) A credit rating agency or any of his employees shall not render, directly or indirectly any investment advice about any security in the publicly accessible media. (b) A credit rating agency shall not offer fee-based services to the rated entities, beyond credit ratings and research. 17. A credit rating agency shall ensure that any change in registration status/any penal action taken by board or any material change in financials which may adversely affect the interests of clients/investors is promptly informed to the clients and any business remaining outstanding is transferred to another registered person in accordance with any instructions of the affected clients/investors. 18. A credit rating agency shall maintain an arm s length relationship between its credit rating activity and any other activity. 19. A credit rating agency shall develop its own internal code of conduct for governing its internal operations and laying down its standards of appropriate conduct for its employees and officers in the carrying out of their duties within the credit rating agency and as a part of the industry. Such a code may extend to the maintenance of professional excellence and standards, integrity, confidentiality, objectivity, avoidance of conflict of interests, disclosure of shareholdings and interests, etc. Such a code shall also provide for procedures and guidelines in relation to the establishment and conduct of rating committees and duties of the officers and employees serving on such committees. 20. A credit rating agency shall provide adequate freedom and powers to its compliance officer for the effective discharge of his duties. 21. A credit rating agency shall ensure that the senior management, particularly decision makers have access to all relevant information about the business on a timely basis. 22. A credit rating agency shall ensure that good corporate policies and corporate governance are in place. 23. A credit rating agency shall not, generally and particularly in respect of issue of securities rated by it, be party to or instrumental for- (a) creation of false market; (b) price rigging or manipulation; or (c) dissemination of any unpublished price sensitive information in respect of securities which are listed and proposed to be listed in any stock exchange, unless required, as part of rationale for the rating accorded. ************** NOTES:- 1 Substituted by the SEBI (Credit Rating Agencies) (Second Amendment) Regulation, 2003 w.e.f. 01.10.2003. Earlier it was amended by the SEBI (Investment Advise by Intermediaries) (Amendment) Regulations 2001, w.e.f. 29.05.2001