In India, credit rating agencies are regulated by SEBI under the SEBI (Credit Rating Agencies) Regulations, 1999. One concern raised globally about CRAs is the 'Issuer-Pays' model. What is this concern?

The 'Issuer-Pays' model is the dominant global model for credit ratings, including in India: the company or government issuing the debt instrument pays the CRA for assigning and maintaining its rating. The fundamental conflict of interest: since the CRA earns revenue from the very entity it rates, it may face pressure (conscious or unconscious) to assign or maintain favourable ratings to retain or attract client business. This concern was amplified by the 2008 Global Financial Crisis, where CRAs assigned high ratings to mortgage-backed securities that later defaulted. The alternative — 'Investor-Pays' model — addresses the conflict but creates free-rider problems (investors sharing ratings without paying). In India, SEBI's CRA regulations include safeguards: mandatory rating disclosures, prohibition on unsolicited ratings without issuer cooperation, rotation requirements, and monitoring of conflict-of-interest policies.