SEBI on Friday proposed 10 per cent cross-shareholding cap in credit rating agencies along with a slew of measures for tightening the financial and operational eligibility of their promoters.

Besides, the regulator has suggested greater disclosure requirements by credit rating agencies (CRAs) as well as by companies getting their services, according to a consultation paper.

The proposed norms are likely to have an impact on global rating agencies such as S&P, Moody’s and Fitch which have significant holdings in domestic agencies besides their direct presence.

In a significant move, the regulator has proposed that no CRA should “directly or indirectly, hold more than 10 per cent of shareholding and/or voting rights in another CRA and shall not have representation on the board of the other CRA.”

Further, SEBI’s prior approval would be needed for acquisition of shares or voting rights in a CRA that results in change in control.

“A shareholder holding 10 per cent or more shares and/ or voting rights in a registered CRA shall not hold 10 per cent or more shares and/ or voting rights, directly or indirectly, in any other CRA,” it noted.

The requirement would not be applicable for holdings by broad-based domestic financial institutions.

“Having some thresholds on cross-holding in CRAs may mitigate concerns regarding conflict of interest, independence of operations, etc,” the consultation paper said. According to SEBI, any activity, other than the rating of financial instruments and economic or financial research, should be hived off by the CRA into a separate entity.

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