Sebi tells Brickwork to appoint professional CEO, strengthen board

Move comes after SAT directed the regulator to issue fresh order while quashing cancellation of rating agency's licence

The Securities and Exchange Board of India (Sebi) has directed Brickwork Ratings to strengthen its board, appoint a professional chief executive officer (CEO) and an independent director as chairperson.

The revised order comes after the Securities Appellate Tribunal (SAT) quashed an order by Sebi — 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 also directed the rating agency to increase the number of directors to nine from the current five. The regulator also said that 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 that its chief regulatory officer, analysts, and persons involved in the rating process undergo an in-depth training.

Restraining the credit rating agency from onboarding new clients or taking fresh mandates from existing clients will continue till six months or till 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 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 the deteriorating financial conditions of issuers.

Brickwork had informed Sebi that its managing director (MD) Vivek Kulkarni had resigned as of July 1. It said it was working on improving rating quality, process, automation, and revision of policies.