SEBI cancels license of Brickwork Ratings; directs it to wind down operations in 6 months

In one of the rare instances, the market regulator, SEBI has cancelled the license of Brickwork Ratings India Ltd and asked it to wind down its operations within six months

PGurus Newsdesk

October 6, 2022

In one of the rare instances, the market regulator, SEBI has cancelled the license of Brickwork Ratings India Ltd and asked it to wind down its operations within six months

Brickwork Ratings faces SEBI ire over lapses in the credit rating process

On Thursday, capital markets regulator Securities and Exchange Board of India (SEBI) cancelled the license of Brickwork Ratings India and directed the credit rating agency to wind down its operations within six months for allegedly violating various rules. SEBI has also barred the agency from taking any new clients.

In its order, SEBI highlighted several violations by Brickwork, including that it failed to follow a proper rating process and exercise due diligence while providing ratings. According to SEBI, Brickwork also made a delay in disseminating information with respect to monitoring of rating and also failed to follow an appropriate rating process.

The regulator carried out inspections of Brickwork for the periods April 2014 to September 2015 and April 2017 to September 2018 and the contraventions observed in the two inspections led to the initiation of separate adjudication proceedings against Brickwork.

Later, the regulator undertook a joint inspection with RBI in January 2020 of the records and documents of Brickwork, for the period from October 2018–November 2019 to ascertain any violation of credit rating agency rules.

Also, the rating agency failed to ensure proper maintenance of records to support its ratings and to make correct disclosures in its press releases concerning some issuers. It did not conclude the rating exercise within the timelines prescribed as per its own internal manual, Sebi said.

SEBI said that Brickwork failed to address the issue of conflict of interest arising due to a Rating Committee Member (other than the managing director/ chief executive officer) having business development roles.

SEBI said, “Noticee (Brickwork) failed to exercise proper skill, care, and diligence while discharging its duties as a credit rating agency, which has defeated the very purpose of regulations i.e, investor protection, and orderly development of the securities markets.”

As per SEBI, repeated lapses noticed across multiple inspections conducted by SEBI showed that governance changes recommended in earlier inspections and monetary penalties imposed have not proved effective or deterred the noticee from addressing very basic requirements of running a credit rating agency.

“Strict regulatory action, in my considered view, is required at this juncture to address the issue and protect the market ecosystem,” SEBI’s whole-time member Ashwani Bhatia said in the order.

Accordingly, the regulator has cancelled the “certificate of registration granted to the noticee, ie, Brickwork Ratings India Pvt Ltd as a credit rating agency”. “The noticee shall wind down its operations (including intimating its client about the closure of its operations) within a period of six months. The noticee shall not take any new clients/ fresh mandates,” it added.

However, the nature of discrepancies or violations contained in the prima facie observations emanating from the fourth inspection are also similar in nature to those contained in the other three inspections, Sebi said.

This is possibly the first instance of cancelling the license of a credit rating agency.

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