In the wake of IL&FS crisis, Sebi is planning to rejig the structure of credit rating firms under which the companies will be required to have
independent directors forming the majority on the boards and a nominee of the regulator, reported The Economic Times, citing sources.
Through the move, the regulator looks to overhaul the governance system, as it seeks to address conflict of interest in business practices, said the report published on Wednesday.
“Recent investigations in the Infrastructure Leasing & Financial Services default revealed the apparent conflict of interest in the conduct of the business of credit rating companies in India. Such risks are often related to their corporate and compensation structure. Rating companies are important market intermediaries helping investors for better risk discovery in debt," a person aware of the development was quoted as saying in the report.
Other key proposals made by the market regulator include barring shareholder-directors from being part of the compensation and audit committees of rating companies, according to the ET sources.
It is also considering to propose that the rating companies store client data and other rating-related documents locally to enable easier retrieval by probe authorities, the report added.
