SAT Grants Interim Relief for Brickwork but Ban on On-boarding New Clients To Continue

Moneylife Digital Team 14 October 2022

Investor Interest

The securities appellate tribunal (SAT) has granted interim relief to Brickwork Ratings in a matter pertaining to the cancellation of its licence by market regulator Securities and Exchange Board of India (SEBI). The tribunal kept the cancellation on hold temporarily but maintained the bar on on-boarding any new client.

Counsel for Brickwork pleaded for a stay on SEBI’s order, calling it a ‘death penalty’ for the credit rating agency, which has over 300 employees and had provided over 2,000 ratings.

SAT has given the credit rating agency two weeks' time to file its reply and two weeks for filing the rejoinder. The matter is likely to be taken up again after a month.

A SEBI counsel argued that a delay in disseminating information by a credit rating agency impacts decisions by investors in instruments like mutual funds.

“In the matter of default in debt by Sintex Plastic, the rating agency did not take any proactive action and waited for the company to publish the results admitting the default,” counsel for the market regulator said.

The bench enquired on why action was not taken on the agency after the third inspection, to which SEBI counsel cited the regulatory process which involved providing a hearing and taking on board the recommendations of 'designated authority'.

After SEBI’s order, the Reserve Bank of India (RBI) also advised regulated entities, and market participants not to obtain fresh ratings or credit evaluations from Brickwork Ratings.

In an order dated 6th October, SEBI cancelled the licence of Brickwork and directed the credit rating agency to wind down its operations within six months for allegedly violating various rules.

In its order issued last week, SEBI had highlighted several violations by Brickwork such as failure to follow a proper rating process and exercise due diligence while providing ratings.

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