Broadbase board before adding new clients, Sebi tells Brickwork

The Securities and Exchange Board of India (Sebi) on Wednesday directed Brickwork Ratings to broadbase its board, three months after the appellate tribunal quashed its order to cancel the credit rating agency’s licence.

Ashwani Bhatia, whole-time member of Sebi held that Brickwork will have to onboard new board members to broadbase its board so that there are nine members. The regulator said the new inducted members to the board should either be independent directors or non-executive directors not related or connected to the founding management of Brickwork Ratings. It also asked the ratings agency to not onboard clients for six months or until these conditions are met, whichever is later.

The order said brickwork must ensure that no more than a quarter of the members of the new board are related or connected to the founders and present management.

On 6 June, Justice Tarun Agarwala of Securities Appellate Tribunal (SAT) had provided relief to the ratings agency, quashing Sebi’s order of winding down the company’s operations. The tribunal had partly affirmed Sebi’s findings of alleged violations, and referred the matter back to the markets regulator to issue a fresh order on the quantum of penalty.

Essentially, Sebi in its October order had directed winding down of operations of Brickwork within six months, citing “failure to exercise proper skill, care and diligence” while discharging duties as credit rating agency.

According to the regulator, Brickwork was repeatedly in violation of credit rating agency regulations. This included delay in default recognition, failure to document meetings with management and undertake site visits. The agency failed to undertake independent analysis of projection provided by the issuer, and conflict of interest, Sebi had said in an earlier order.

On Thursday, Sebi clarified that Brickwork shall ensure compliance with directions of the order within five months from the date of the order.

“Sebi shall conduct a review after the period of five months to examine the compliance by the noticee (Brickwork) with the directions issued in this order. The review shall be completed by Sebi within six months from the date of this order,” Bhatia said.

In June , SAT, while setting aside Sebi’s order, had called Brickwork’s licence cancellation unjustified.