𝐒𝐄𝐁𝐈 𝐀𝐮𝐭𝐡𝐨𝐫𝐢𝐳𝐞𝐬 𝐄𝐑𝐏𝐬 𝐚𝐧𝐝 𝐂𝐑𝐀𝐬 𝐭𝐨 𝐎𝐩𝐞𝐫𝐚𝐭𝐞 𝐔𝐧𝐝𝐞𝐫 𝐈𝐅𝐒𝐂𝐀

Securities and Exchange Board of India (SEBI) has recently added 𝐈𝐧𝐭𝐞𝐫𝐧𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐅𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐒𝐞𝐫𝐯𝐢𝐜𝐞𝐬 𝐂𝐞𝐧𝐭𝐫𝐞 – 𝐆𝐮𝐣𝐚𝐫𝐚𝐭 𝐈𝐧𝐭𝐞𝐫𝐧𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐅𝐢𝐧𝐚𝐧𝐜𝐞 𝐓𝐞𝐜𝐡-𝐜𝐢𝐭𝐲 (IFSC-GIFT City), International Financial Services Centres Authority (IFSCA Official) to the list of financial sector regulators/authorities, thereby allowing 𝐄𝐒𝐆 𝐫𝐚𝐭𝐢𝐧𝐠 𝐩𝐫𝐨𝐯𝐢𝐝𝐞𝐫𝐬 (𝐄𝐑𝐏𝐬) to undertake ESG ratings and 𝐜𝐫𝐞𝐝𝐢𝐭 𝐫𝐚𝐭𝐢𝐧𝐠 𝐚𝐠𝐞𝐧𝐜𝐢𝐞𝐬 (𝐂𝐑𝐀𝐬) to conduct credit ratings of financial instruments offered under the IFSCA.

Regulation 28E(d) of SEBI (Credit Rating Agencies) Regulations, 1999, and Para 7.1 of the Master Circular for ERPs dated May 16, 2024, allow ERPs to undertake or offer ESG ratings of any product or issuer as required by another financial sector regulator or authority, under the guidelines of such regulator or authority. Similarly, Regulation 9(f) of SEBI (Credit Rating Agencies) Regulations, 1999, and Para 25 of the Master Circular for CRAs permit CRAs to rate financial instruments under the guidelines of respective financial sector regulators/authorities.

In two circulars issued on July 19, 2024, SEBI specified that any issues arising from the activities of SEBI registered ERPs and CRAs in the IFSC will be addressed by the International Financial Services Centres Authority (IFSCA) under the powers granted by the IFSCA Act, along with related regulations and subsidiary instructions.

𝐖𝐡𝐚𝐭 𝐚𝐫𝐞 𝐄𝐑𝐏𝐬?
Under Chapter IV A of the Credit Rating Agencies (CRA) Regulations, 1999, ESGs are defined as entities engaged in issuing environmental, social, and governance ratings. ESG ratings are opinions about an issuer or a security’s ESG profile, risks, or impact on society, climate, and the environment, issued using a defined ranking system, whether or not explicitly labelled as “ESG ratings.”

𝐖𝐡𝐚𝐭 𝐚𝐫𝐞 𝐂𝐑𝐀𝐬?
Under Regulation 2(h) of the CRA Regulations, 1999, CRAs are defined as corporate bodies engaged in or proposing to engage in the business of rating securities that are listed or proposed to be listed on a SEBI-recognized stock exchange.

𝐊𝐞𝐲 𝐇𝐢𝐠𝐡𝐥𝐢𝐠𝐡𝐭𝐬 𝐨𝐟 𝐭𝐡𝐞𝐬𝐞 𝐒𝐄𝐁𝐈 𝐜𝐢𝐫𝐜𝐮𝐥𝐚𝐫𝐬:
1.     Any issue arising from the activities of such agencies in the IFSC shall be addressed by the IFSCA under Sections 12 and 13 of the IFSCA Act.
2.     The IFSCA shall be responsible for handling complaints, enforcement actions, and furnishing information to third parties, including statutory or judicial bodies, concerning the services provided by the CRAs in the IFSC.
3.     This circular shall be effective immediately.

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