POLICY ON MANAGING CONFLICT OF INTEREST AND FIREWALL POLICY

Part I: Policy on Managing Conflict of Interest

Infomerics Valuation and Rating Private Limited (IVRPL) is a Credit Rating Company accredited by RBI and licensed to operate as a Credit Rating Agency by SEBI. IVRPL provides rating services to a variety of sectors and clients. IVRPL adopts the best practices relating to transparency, disclosures and good governance.

IVRPL has established policies and procedures to effectively manage conflict of interests. The key lies in adequate disclosures and a strong governance architecture comprising codes of conduct and robust firewall mechanisms.

A. Managing Conflicts of Interest

i) How conflict of interest is avoided at Board level and with shareholders as well as affiliates (NREs).

IVRPL has a Code of Conduct for its employees, Directors and Rating Committee members and all are required to abide by the Code. Further the Directors, Rating Committee members and employees are to submit their annual declaration of their holdings to the Company.

Further, as per SEBI CRA regulations, none of the employee/directors of major shareholders can be employee/Director of IVRPL or a Rating Committee member of IVRPL.

Non-ratings activities: In line with SEBI directives, all non-rating businesses have been separated from IVRPL to its subsidiary Infomerics Analytics and Research Pvt. Ltd. (IARPL).

ii) Avoidance of conflict of interest at Rating Committee level

The External Rating Committee (ERC) and Rating Review Committee (RRC) of IVRPL comprise majority independent members.

ERC: Apart from Chief Rating Officer (CRO), all the other members of both ERCs are independent. These independent members are experienced professionals from the banking sector. The details of external rating committee members are available on IVRPL’s website and in company brochures. All ERC members are appointed in their professional capacity. A disclosure of interest is taken from each ERC member about the companies/entities in which he/she is interested as a director or in any other capacity. If any of the members is interested in a rated entity, the agenda papers for such entity are not sent to him/her and he/she does not participate in the discussion while assigning the rating and such fact is also disclosed in all the publications including the rating note and the press release.

RRC: Our Rating Review Committee comprises majority independent members. If any of the members is interested in a rated entity, the agenda papers for such entity are not sent to him/her and he/she does not participate in the discussion while assigning the rating and such fact is also disclosed in all the publications including the rating note and the press release.

iii) Independence at organizational level:

At the organization level, IVRPL has independent teams handling business development activities and separate analyst teams handling rating activities. In terms of hierarchy, the business development and rating organization are vertically separated. While the CEO handles

the business development activities and heads the function, the rating activities are headed by the CRO who reports directly to the Rating Sub Committee of the Board. The business development team has no say in the rating process or outcome of the rating. Further, IVRPL has in place a quality control and monitoring team which is independent of the team handling the rating assignment. Select rating notes prepared in connection with initial rating assignments are independently reviewed by this team before being considered by the Rating Committees.  Neither IVRPL nor any of its subsidiaries shall provide consultancy or advisory services regarding the design of structured finance instruments

iv) Independence at individual level

  1. The Analyst team handling the rating assignment is independent of the business development team and is not involved in any form of negotiation for rating fee.
  2. Rating analysts’ compensation comprises a largely fixed component. There is no linkage between the analyst’s compensation and the rating fees paid by issuers. This ensures that there is no potential conflict of interest faced by the team undertaking the rating assignment. In respect of the variable compensation, IVRPL has a well-defined set of parameters for performance evaluation which are not related to rating revenue.
  3. If any employee has made any investment in its personal capacity or through its family members in any companies/entities, then he/she must disclose details of all his/her investments to the Compliance Officer; and based on the same, the Company shall ensure that such Employees are not involved in any of the credit rating assignments of that companies/entities, in which such employees is having his/her investments.
  4. Any employee who is involved in any credit rating activities, shall not be involved in any non-rating activities.
  5. Employee independence is ensured by the process established at IVRPL wherein the analyst presents his/her analysis on the case through the Rating note and is free to air his/her views on the cases handled during the rating committee meetings.
  6. Further, IVRPL does not permit soliciting of gifts or acceptance of gifts in return of favours/ preferential treatment of any kind. IVRPL has a “No Gift Policy” which is published in the intranet and the website and forms part of the Operations Manual.
  7. At all times it must be ensured that the personal interest of the employee does not at any time conflict with their duty to their clients and the client’s interest always takes primacy.

a) Restrictions on Employees

  1. The Company shall ensure that if any employee or any family members of such employee has any kind of investment in any rated entity, the Company will not approve or allow to participate such employee in any credit rating activities of that rated entity, in which such employee is having his/her investments.
  2. If any employee (individually or through his/her family member) owns any securities (including derivatives of securities) of any entity related to a Rated Entity, the ownership of which either constitutes a conflict of interest or creates the impression of a conflict of interest that Company deems to be unacceptable, such employee(s) shall not be involved in any credit rating activities of that particular entity.
  3. The Company shall not allow any employee in any credit rating activities, if such employee had a recent employment or other significant business relationship with the rated entity.
  4. The Company shall not allow any employee in any credit rating activities, if that employee had an immediate relation (i.e., a spouse, partner, parent, child or sibling) who works for the rated entity in circumstances where this employment relationship either constitutes a conflict of interest or creates the impression of a conflict of interest that IVRPL deems to be unacceptable.

b) Procedures And Controls to Managing Conflicts of Interests

The procedures and controls that the Company follows to manage the identified conflicts of interests include the following:

  1. All the Employees (who are involved in Credit Rating activities) and the Board of Directors of the Company, shall submit a Declaration Form stating the details of their investments and any instances of conflict of interest.
  2. Chinese walls restricting flow of confidential and price sensitive information within the Company, physical separation of departments and sharing of information only on a “need to know basis”.
  3. Appointment of Independent Internal auditors to ensure that appropriate systems and controls are maintained and their effectiveness or otherwise is being reported to the Company’s Board of Directors.
  4. Personal account dealing requirements applicable to Employees in relation to their own investments needs an approval from the Compliance Team by submission of an Investment Request Form.
  5. The Board of Directors of the Company and the Compliance team share the responsibility for keeping the Policy in place. Any situation or transaction involving an actual or potential conflict of interest should promptly be reported to the Compliance Team who would determine whether a conflict exists.
  6. Infomerics will not have incentive structure that encourages sale of products not suiting the risk profile of their clients.

c) Non-Compliance And Consequences

  1. In case of (a) failure by the Employees to comply with this Policy, or (b) failure to provide Declaration, or (c) in case of concealment of information(s), or (d) violation of the Restrictions, the Board of Directors may take appropriate disciplinary action against such Employees, including dismissal from employment. In addition, with respect to certain Policy requirements the Employee may also be subject to personal civil and criminal liability, subject to consideration from the Board.
  2. Employees who find that they have violated this Policy must inform the Compliance Team promptly. Similarly, Employees who become aware of a violation of this Policy must also inform Compliance Team promptly. Company prohibits retaliation against Employees who in good faith report an actual or potential violation of this Policy.
  3. In the event of a conflict of interest that arises through a violation of this Policy, the Board of Directors, in consultation with Compliance Team, must determine whether there is a possibility that the objectivity of a rating was impacted and whether there are grounds for withdrawing the rating. In cases where it is possible that the objectivity of a rating was impacted, the rating must be reviewed by a rating committee.

d) Disclosure And Evaluation of Conflicts

Each Employee shall fully disclose all material facts of every actual or potential conflict of interest:

B. Transparency And Disclosure

IVRPL believes that transparency and adequate disclosure about its businesses, practices and rating criteria enable the market to assess a rating agency’s integrity. IVRPL makes the following disclosures to affirm that integrity of the ratings is not being compromised on account of business considerations:

  1. Rating criteria: IVRPL’s rating criteria are disseminated through its website, publications, and investor discussions. IVRPL has published criteria for all the major business segments in the corporate, infrastructure and financial sectors.
  2. Rationale for each rating: Rating Rationales for all the ratings assigned by IVRPL are publicly available. IVRPL’s analysts are also accessible for discussions on the rationale of any rating.
  3. Default and transition data: IVRPL publishes its default and rating transition data in line with SEBI guidelines.

 C. Non-Rating Entities

Infomerics group has the following Non-Rating Entities (NREs)

  1. Infomerics India Foundation (IIF), which has been formed as an advisory/policy making body to give guidance to the Infomerics group on various aspects. IIF, comprising individuals of eminence, is an ‘NGO’ with Governing body and steering committee in policy making and direction.
  2. Infomerics Analytics and Research Pvt Ltd (IARPL) is a 100% subsidiary of IVRPL, which has been established for rendering services in the field of grading, scoring, analysis, evaluation, certification and appraisal. IARPL meets a variety of business research needs with credible, high-quality research and analysis on various facets of the Indian economy and industries. IARPL does not participate in any rating related activities and does not use the rating symbols used by IVRPL in any of its products.

Apart from the above, the following entities (which are not into the same line of business) have Directors who are common with IVRPL.

Details of common directors and CEOs are furnished on the website.

Mode / Permanency of arrangement

Other companies are not in related line of business.

 Part – 2: Firewall Policy

  1. Physical separation of non-ratings and ratings activities: The teams handling ratings and non-ratings businesses are physically separated where feasible (in larger offices) while in smaller offices, they may share the same office. Office premises are separated for business development teams and analytical teams. In terms of hierarchy, the business development and rating organization are vertically separated. While the CEO handles the business development activities and heads the function, the rating activities are headed by the CRO who reports directly to the Rating Sub Committee of the Board.
  2. No non-ratings employee is a member of IVRPL’s internal rating committee.
  3. No non-ratings employee is allowed access to Rating Committees
  4. Firewall policy to regulate information transfer: IVRPL has put in place a firewall policy to ensure that the ratings and non-ratings businesses do not have access to each other’s non-public information.

IVRPL remains committed to taking all the necessary steps to insulate its ratings activity from any emerging situation that could create a potential conflict of interest.

Disclaimer: By making this document available to the public, IVRPL does not assume any responsibility or liability to any third party arising out of or relating to the contents of this document. This document shall not form a part of any contract with any third party and no third party shall have any right (contractual or otherwise) to enforce any of this document's provisions, either directly or indirectly. IVRPL in its sole discretion may revise the contents of this document to reflect changes in market, legal, economic and regulatory circumstances and changes to IVRPL's controls, policies and procedures.

 Last Updated on May 2024

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