The Securities and Exchange Board of India (Sebi) has directed Brickwork Ratings to strengthen its board, and appoint a new independent professional chief executive officer (CEO) and an independent director as the chairperson.
The revised order comes after the Securities Appellate Tribunal (SAT) quashed an order by the market regulator issued in October 2022, cancelling Brickwork’s licence as a credit rating agency. While affirming some of the violations, the tribunal had remitted the matter to Sebi for a fresh order on the quantum of penalty.
Sebi has also directed the rating agency to increase the aggregate number of board directors to nine from the current five-member board, of which all new members will have to be unrelated to the founding members. It has further asked the agency to exclude founding management members from rating committees and rating processes.
Brickwork will also have to ensure their chief regulatory officer, analysts and persons involved in the rating process undergo in-depth training.
The restraint on the credit rating agency from onboarding new clients or taking fresh mandates from existing clients will continue until six months or until the time it ensures satisfactory compliance with the directions—whichever is later— noted the order.
“…remedial measures adopted after the first and second inspections do not seem to have had the desired effect, as similar violations have been observed even in the third inspection. The proof, as they say, is in the pudding. Therefore, an embargo on onboarding new clients needs to be in place for some more time…,” noted the order.
The fresh order issued by Sebi whole-time member Ashwani Bahtia said that the market watchdog will conduct a review after five months to examine the compliance.
The action on the rating agency comes after the tribunal upheld certain violations related to delays in complying with regulatory mandates, deficiencies in the rating process and issues related to record-keeping. Sebi has further pointed out gaps in the system for reviewing ratings and repeated failure to identify deteriorating financial conditions of issuers.
Brickwork had informed Sebi that its managing director, Vivek Kulkarni, had resigned from the post as of July 1 and that it was working on the improvement of rating quality, process, automation and revision of policies.