Regulation 28E - Eligibility criteria - Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999

1 [ Eligibility criteria 28E . For the purpose of the grant of certificate, the applicant shall fulfil the following criteria namely, (a) the applicant shall be incorporated as a company under the Companies Act, 2013 (18 of 2013); (b) the applicant shall have specified ESG rating activity, as the main object in its Memorandum of Association; (c) the applicant shall have submitted, to the Board, its business plan pertaining to providing ESG ratings, along with the following information, namely (i) a target breakeven date; (ii) target revenue and the targeted number of clients it plans to service, within two years of obtaining a certificate; and (iii) cumulative cash losses that the applicant projects to incur until the targeted breakeven date, along with the activities or areas in which such losses shall be incurred; Explanation . The targets mentioned in clause (c) of this regulation shall: A. be set by the applicants themselves; B. be limited to their operations in securities markets, i.e. related to issuers that are listed, or proposed to be listed, or whose securities are listed or proposed to be listed, on a recognized stock exchange; and C. be reasonable; (d) the applicant shall have submitted a declaration that it does not and shall not undertake any activity or offer any product or service, except the following: (i) ESG rating of an issuer, that is listed or proposed to be listed on a stock exchange recognized by the Board, or (ii) ESG rating of a security, that is listed or proposed to be listed on a stock exchange recognized by the Board, or (iii) Offering any other product or service or undertaking any other activity as may be specified by the Board, or (iv) ESG rating of any other product or issuer, as may be required by another financial sector regulator or authority, as may be specified by the Board, under the guidelines of such regulator or authority: Provided that a Category II ESG rating provider shall not undertake certification of green debt securities or such other activities as the Board may specify from time to time. (e) the applicant shall have and shall maintain the net worth as required under the provisions of these regulations: Provided that the net worth shall be in the form of positive liquid net worth; (f) the applicant shall have necessary infrastructure including adequate office space, technology, equipment and manpower, to enable it to provide ESG rating services in accordance with the provisions of the Act and these regulations: Provided that the requirement of having an office space shall not be mandatory for a Category II ESG rating provider if it conducts its operations remotely subject to a declaration by it to this effect; (g) the applicant is not a credit rating agency or any other intermediary registered with the Board; (h) the applicant shall have appointed a compliance officer; (i) the applicant shall have, in its employment, persons with adequate professional and other relevant experience to the satisfaction of the Board; (j) the applicant and its promoter(s), are fit and proper person(s), as per Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008; (k) the applicant, during the past three years from the date of filing the application, has not been (i) refused by the Board a certificate under these regulations, or (ii) deemed not fit and proper by the Board, or (iii) subject to any enforcement action for a contravention of the Act or of any rules or regulations made under the Act. (l) the grant of certificate to the applicant would be in the interest of investors; (m) the applicant shall have, in case it is seeking registration under Category I, satisfied the following additional criteria, namely (i) the applicant is a subsidiary of an intermediary registered with the Board, or of ESG rating provider incorporated in a Financial Action Task Force (FATF) member jurisdiction and recognized under their respective law, having a minimum experience of five years in ESG rating of securities or companies; (ii) the promoter of the applicant is: A. a person regulated by any of the financial sector regulators namely, the Board, the Reserve Bank of India, the Insurance Regulatory and Development Authority of India or the Pension Fund Regulatory and Development Authority, subject to the receipt of the relevant approval(s) from the concerned regulator or authority; or B. a foreign ESG rating provider incorporated in the jurisdiction of a member of the Financial Action Task Force (FATF) and recognized under their respective law, having a minimum experience of five years in the business of providing ESG rating of securities or companies; or C. a body corporate with a continuous net worth of minimum rupees one hundred crores, as per its audited annual accounts for the previous five years, prior to filing of the application with the Board for the grant of certificate: (iii) the promoter of the applicant shall maintain a minimum shareholding of twenty six per cent. in the ESG rating provider for a minimum period of five years from the date of grant of registration by the Board; (iv) the applicant shall maintain a minimum liquid net worth of rupees five crores at all times: Provided that at the time of making the application, the applicant shall have a minimum liquid net worth of the higher of, A. rupees ten crores, or B. addition of rupees five crores and the target on cumulative cash losses until breakeven, as provided by the applicant under these regulations: Provided further that the liquid net worth can be drawn down in terms of the business plan submitted at the time of application for certificate, subject to compliance with these regulations; (v) the applicant shall have at least four employees specialized across the following areas, at all times: A. governance, B. sustainability, C. social impact or social responsibility, D. data analytics, E. finance, F. information technology, and G. law. Explanation. For the purposes of this regulation, one employee may be treated as a specialist in at most two of the above areas. A person shall be considered as specialized in an area if such person possesses any of the following: A. relevant work experience of not less than five years in the specified area; or B. a professional qualification in the specified area from a university or an institution recognized by the Central Government or any State Government or a foreign university, or a Chartered Financial Analyst charter from the Chartered Financial Analyst Institute; or C. any other qualification as may be specified by the Board; (n) the applicant shall, in case it is seeking registration under Category II, satisfy the following additional criteria, namely (i) the applicant shall maintain minimum liquid net worth of rupees ten lakh at all times: Provided that at the time of making the application, the applicant shall have a minimum liquid net worth of the higher of, A. rupees twenty lakhs; or B. addition of rupees ten lakhs and the target on cumulative cash losses until breakeven, as provided by the applicant under these regulations: Provided further that the liquid net worth can be drawn down in terms of the business plan submitted at the time of application for certificate, subject to compliance with these regulations; (ii) the applicant shall have at least two employees specialized across the following areas, at all times: A. governance, B. sustainability, C. social impact or social responsibility, and D. data analytics. Explanation . For the purposes of this regulations, one employee may be treated as a specialist in at most two of the above areas. A person shall be considered as specialized in an area if such person possesses any of the following: (a) has relevant work experience of not less than five years in the specified area; or (b) a professional qualification in the specified area from a university or an institution recognized by the Central Government or any State Government or a foreign university; or (c) any other qualification as may be specified by the Board; (o) any other criteria, as may be specified by the Board, from time to time. ] *************** NOTES:- 1. Inserted vide Notification No. SEBI/LAD-NRO/GN/2023/136 dated 03-07-2023