RBI Asks Entities, To Stop Obtaining Ratings From Brickwork Ratings

The Reserve Bank on Wednesday directed entities falling under its regulations to immediately stop obtaining any new ratings from Brickwork Ratings India, which has been asked by Sebi to wind down operations. On October 6, the capital markets regulator Sebi cancelled the licence of Brickwork Ratings India, directing the credit rating agency to wind down its operations within six months of the order, for allegedly violating various rules.

Citing the cancellation of the Certificate of Registration (CoR) granted to the rating firm by Sebi, the RBI said the regulated entities/market participants are advised not to obtain fresh ratings/evaluations from the said rating agency with immediate effect. The regulated entities falling under RBI include banks, NBFCs, credit information bureaux, housing finance companies among others. "The instructions regarding the prudential treatment of the existing ratings issued by the rating agency shall be advised separately," RBI said in a release.

The Sebi action on Brickwork Ratings is seen possibly as the first instance by the regulator of cancelling the licence of a credit rating agency. In its order dated October 6, Sebi highlighted several violations by Brickwork, including failure to follow a proper rating process and exercising due diligence while according ratings. Sebi has barred the agency from taking any new clients. According to the Sebi order, Brickwork Ratings failed to ensure proper maintenance of records to support its ratings as well as in making correct disclosures in its press releases concerning some issuers.

It did not conclude the rating exercise within the timelines prescribed as per its own internal manual, Sebi said. Brickwork also made a delay in disseminating information with respect to monitoring of rating and also failed to follow an appropriate rating process, as per Sebi. Besides, the agency failed to address the issue of conflict of interest arising due to a Rating Committee Member (other than the Managing Director/ Chief Executive Officer) having business development roles.

There were cases of repeated lapses across multiple inspections conducted by Sebi. 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 credit rating agency, Sebi said in its order. It had carried out inspections on the agency during April 2014 to September 2015 and April 2017 to September 2018. In January 2020, Sebi undertook a joint inspection with RBI of the records and documents of Brickwork, for the period from October 2018-November 2019 to ascertain any violation of credit rating agency rules.

(PTI)