The Securities and Exchange Board of India (Sebi) has asked the credit rating agency to wind down its operations within six months. Brickwork has also been barred from adding any new clients from the date of the order, Sebi said.
In November 2020, Sebi issued a show-cause notice to Brickwork Ratings and the allegations levelled against it were failure to follow the proper rating process and exercise due diligence while providing ratings.
The regulator also alleged that the agency failed to ensure proper maintenance of records to support its ratings and delayed dissemination of information with respect to monitoring of ratings.
Sebi’s inspection also found that Brickwork Ratings failed to comply with timelines prescribed in its internal operational manual in more than 75% of the cases. It also did not address the issue of conflict of interest arising due to a rating committee member having business development roles.
The regulator also alleged that the rating agency failed to make correct disclosures in its press releases concerning some issuers.
“Should Sebi cancel the registration of the noticee (Brickwork Ratings India) as a CRA (credit rating agency), even though such a cancellation may be prospective in nature, it will irreparably prejudice not only the noticee but will also have an adverse impact on the securities market,” Brickwork Ratings said in its submission to the regulator.
At present, about 9,000 ratings issued by Brickwork Ratings are live and under surveillance. These include both bank loan ratings and ratings of securities and instruments that might also be listed.
“This is likely to have a materially destructive impact on the interests of the issuers and the investors. It is also pertinent to point out that cancellation of the noticee’s licence will irretrievably prejudice the workforce of the noticee and cause a loss of livelihood for over 300 employees,” Brickwork Ratings submitted to Sebi.
Sebi had conducted three inspections of Brickwork Ratings.
“The repeated lapses, noticed across multiple inspections conducted by Sebi, shows that governance changes recommended in earlier inspections, and monetary penalties imposed have not proved effective or deterred the noticee in addressing very basic requirements of running a CRA. 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 his order.
