Capital market regulator Sebi on Thursday ordered Brickwork Ratings India Pvt Ltd to wind down operations within six months, citing “failure to exercise proper skill, care and diligence” while discharging duties as a credit rating agency.
Cancelling the certificate of registration of Brickwork Ratings, Sebi noted that 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 (Brickwork Ratings) in addressing very basic requirements of running a CRA.
In a rare order, the market regulator also prevented the credit rating agency from taking on any new business, saying there have been repeated lapses in the functioning of the rating agency.
“In exercise of the powers contained under the SEBI Act, 1992 read with the SEBI (Credit Rating Agencies) Regulations, 1999, SEBI had carried out inspections of Brickwork for the periods April 1, 2014–September 30, 2015 and April 1, 2017–September 30, 2018. The contraventions /deficiencies observed in the first and second inspections led to initiation of separate adjudication proceedings against Brickworks,” the Sebi order read.
Recently, the Supreme Court has allowed Sebi to conclude the proceedings for cancellation of Brickwork Ratings’ licence for allegedly violating various credit rating regulations.
A Bench led by Justice SA Nazeer stayed the Karnataka High Court’s orders that had rejected the Sebi’s plea to vacate its earlier orders that restrained it from concluding proceedings with regard to cancellation of the Brickwork’s license.
The HC also stayed the Sebi’s order that rejected the Brickwork’s settlement application in August 2021. The HC orders came on Brickwork’s petitions seeking a stay on Sebi’s proceedings against it on the grounds that it was not given a proper hearing.
Sebi began probing the credit rating agency in 2020 and undertook a joint inspection with the Reserve Bank of India.
The key findings of the initial probe, as per the order, include a delay in recognition of default of non-convertible debentures, failure to downgrade to ‘default’, failure to review ratings even after receiving information about delayed payments, the order noted.
The capital market regulator also pointed to a lack of surveillance mechanism for tracking the interest/ principle repayment schedule of issuers, which would hamper the rating agency’s ability to provide accurate ratings.
Further investigation found that the rating agency failed to follow a proper rating process and failed to exercise due diligence while providing ratings, the order said.
Brickwork is one of the seven Sebi-registered credit rating agencies. The others are Crisil, Care, Icra, Fitch, Infomerics Ratings and Acuité Ratings & Research.
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