NEW DELHI: In an unprecedented move, the capital market regulator – Securities and Exchange Board of India (Sebi) – on Thursday cancelled the registration of rating agency Brickwork Ratings India and asked it to shut down its operations within six months for repeated lapses in ‘discharging’ its duties.
Sebi had earlier imposed monetary penalties on and recommended governance changes in Brickwork Ratings after it found several instances of lapses by the agency. In an order on Thursday, the regulator said governance changes recommended in earlier inspections, and monetary penalties imposed have not proved effective or deterred Brickwork in addressing basic requirements of running a credit rating agency. It said strict regulatory action is required to address the issue and protect the market ecosystem. The order further says Brickwork Ratings has failed “to exercise proper skill, care and diligence while discharging its duties as a credit rating agency, which has defeated the purpose investor protection and orderly development of the securities markets.
The market regulator had conducted multiple inspections of Brickwork for ratings given from April 2014 to 2019. It also undertook a joint inspection with RBI between January 20 and 24, 2020, of the records and documents of Brickwork.
During these inspections, the regulators found multiple deficiencies in exercising proper skill, care and diligence while discharging its duties. The regulator found on several instances, the rating agency delayed recognising defaults, material events and even failed to downgrade the ratings of securities. The regulators also detected several instances of conflict of interest where executives involved in ratings were also found to be in the business development team.
These irregularities were found in relation to ratings of several companies -- including IL&FS group companies, Bhushan Steel, Reliance Home Finance, Reliance Capital, Sintex Ltd, Coffee Café Day, etc-- which later either went into bankruptcy or faced several financial challenges.
- In multiple inspections, Brickwork was found repeatedly failing to discharge its duties diligently
- Sebi has on two occasions levied penalties and ordered management changes on the rating agency
- Brickwork Ratings was found to be delaying recognition of defaults, material events
- It was found delaying ratings downgrade
- It failed to separate ratings operations with that of biz development