SEBI orders Brickwork Ratings to cease operations within six months; all you need to know

Brickwork Ratings India Pvt Ltd has been ordered to cease operations by capital market regulator SEBI on 6 October due to failure to apply adequate skill, care, and diligence when performing the duties of a credit rating agency. Brickwork Ratings’ certificate of registration was revoked by SEBI, who noted that the repeated violations found during multiple inspections show that the governance changes suggested during earlier inspections and the financial penalties imposed have not proven successful or dissuaded the Noticee (Brickwork Ratings) in meeting the most fundamental requirements of operating a CRA. The market regulator also issued an unprecedented order prohibiting the credit rating agency from accepting any new business on the grounds that the agency’s operations had frequently failed.

“In order to exercise its authority under the SEBI Act of 1992 and the SEBI (Credit Rating Agencies) Regulations of 1999, SEBI conducted inspections of brickwork between 1 April 2014, and 30 September 2015, and between 1 April 2017, and 30 September 2018, respectively. Due to the violations and shortcomings found during the first and second inspections, Brickworks was subject to separate adjudication proceedings,” SEBI stated in the order.

The decision observed that the main conclusions of the initial investigation included a delay in recognising the default of non-convertible debentures, a failure to downgrade to “default,” and a failure to evaluate ratings even after being informed of delayed payments. The absence of a monitoring system for issuers’ interest/principal repayment schedules, as noted by the capital market regulator, would make it more difficult for the rating agency to produce reliable ratings. The rating agency was determined to have violated both due diligence and proper rating procedures, according to further examination, the order stated.

Due to alleged violations of many credit rating rules, the Supreme Court has granted SEBI authority to complete the procedures for cancelling Brickwork Ratings’ licence. The Karnataka High Court’s rulings, that denied the SEBI’s request to overturn prior rulings that prevented it from ending the process of cancelling the Brickwork’s licence, were overruled by a bench chaired by Justice SA Nazeer.

SEBI’s order rejecting Brickwork’s settlement application in August 2021 was also rejected by the HC. Brickwork filed applications with the High Court asking for a stay of SEBI’s actions against it on the grounds that it was not granted a fair hearing.

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