The Securities and Exchange Board of India (SEBI) has cancelled the certificate of registration of credit rating agency Brickwork Ratings and ordered it to wind down operations within a period of six months.

The market regulator in an order on Thursday said that the credit rating agency shall not take any new clients or fresh mandates and intimate its existing clients about closure of its operations.

Brickwork Ratings did not do independent analysis of projections provided by the issuer in certain cases, the market watchdog says, adding that the rating agency failed to document meetings with management and undertake site visits.

Delayed in default recognition and conflict of interest were among the other reasons cited by SEBI in its order.

"The noticee failed to exercise proper skill, care and diligence while discharging its duties as a credit rating agency, which has defeated the very purpose of regulations i.e. investor protection and orderly development of the securities markets," says Ashwani Bhatia, whole-time member, SEBI.

"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," Bhatia says.

Brickwork Ratings, which counts state-run Canara Bank among its promoters, was granted registration by SEBI in the year 2008. It has a corporate office in Bengaluru and a country-wide presence with its offices in Ahmedabad, Chandigarh, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi along with representatives in over 150 locations.

SEBI carried out a series of inspections against Brickwork Ratings starting April 2014. The regulator had imposed penalties on Brickwork Ratings for lapses such as a delay in recognition of default of non-convertible debentures issued by Bhushan Steel even after disclosure of default by the debenture trustee. SEBI had also penalised the agency for its failure to downgrade the rating for the debentures issued by Gayatri Projects.

SEBI undertook a joint inspection with RBI, between January 20 and 24, 2020, of the records and documents of Brickwork for ascertaining whether the provisions of the SEBI Act and CRA Regulations were being complied with. The inspection revealed several irregularities which were prima facie in violation of the provisions of the CRA regulations and certain SEBI circulars.

SEBI then issued an administrative warning and directed the rating agency to rectify the discrepancies and take corrective measures.

In 2021, SEBI received a notice by the Karnataka High Court, where Brickwork had challenged the recommendation of cancellation of its licence. SEBI then moved a special leave petition before the Supreme Court, challenging the Karnataka High Court order. Last month, the top court allowed the market regulator to cancel Brickwork's licence.

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