Summary Proceedings for SEBI Intermediaries

SEBI has released a consultation paper proposing summary proceedings to address certain securities law violations by intermediaries more swiftly. These streamlined proceedings are designed for clear-cut violations or cases where the intermediary admits the violation or minimal evidence is needed. The proposal aims to efficiently handle the increasing number of such violations.

𝐖𝐡𝐲 𝐏𝐫𝐨𝐩𝐨𝐬𝐚𝐥?:

1.    𝐅𝐚𝐢𝐥𝐮𝐫𝐞 𝐭𝐨 𝐏𝐚𝐲 𝐑𝐞𝐧𝐞𝐰𝐚𝐥 𝐅𝐞𝐞: Intermediaries have increasingly failed to pay periodic renewal fees required to maintain their (permanent) registration, leading to expired registrations. Expired registration certificates must be canceled, but the process under Chapter V of the Intermediaries Regulations is lengthy, even in the absence of disputes.
2.    𝐍𝐨𝐧 𝐬𝐮𝐛𝐦𝐢𝐬𝐬𝐢𝐨𝐧 𝐨𝐟 𝐩𝐞𝐫𝐢𝐨𝐝𝐢𝐜 𝐫𝐞𝐩𝐨𝐫𝐭𝐬: there are a few intermediaries that repeatedly fail to submit periodic reports within the timelines specified by SEBI.
3.    𝐍𝐨𝐧-𝐫𝐞𝐠𝐢𝐬𝐭𝐫𝐚𝐭𝐢𝐨𝐧 𝐰𝐢𝐭𝐡 𝐈𝐀𝐀𝐒𝐁: A few hundred entities failed to register with the IAASB within the given timeline, rendering their SEBI registration as Investment Advisors invalid. Cancelling these registrations necessitates separate proceedings for each intermediary, requiring significant resources despite the clear and undeniable violations.

𝐒𝐮𝐦𝐦𝐚𝐫𝐲 𝐏𝐫𝐨𝐜𝐞𝐞𝐝𝐢𝐧𝐠𝐬 𝐟𝐨𝐫 𝐈𝐧𝐭𝐞𝐫𝐦𝐞𝐝𝐢𝐚𝐫𝐢𝐞𝐬 𝐔𝐧𝐝𝐞𝐫 𝐀𝐦𝐞𝐧𝐝𝐞𝐝 𝐑𝐞𝐠𝐮𝐥𝐚𝐭𝐢𝐨𝐧 30𝐀: Recognizing the need for efficiency, summary proceedings are proposed to be introduced to address certain violations uniformly and expedite the enforcement process. Regulation 30A of the Intermediaries Regulations currently applies to cases involving expelled stock brokers, clearing members, and terminated depository participants.

The amended Regulation 30A will cover intermediaries under specific conditions, including:

i. Expulsion by stock exchange(s) or clearing corporation(s)
ii. Termination of depository agreements
iii. Claims of returns or performance not permitted by the Board
iv. Claims of returns or performance found false or misleading by the Board or a specified agency (e.g., Performance Validation Agency (PVA))
v. Non-payment of specified fees to maintain registration
vi. Intermediary being untraceable
vii. Failure to submit periodic reports for three or more consecutive periods as specified by SEBI
viii. Admission of the violation by the intermediary

Students of law may find ‘𝒄𝒆𝒓𝒕𝒂𝒊𝒏 𝒄𝒐𝒏𝒔𝒕𝒊𝒕𝒖𝒕𝒊𝒐𝒏𝒂𝒍 𝒊𝒔𝒔𝒖𝒆𝒔’ in the attached paper. Courts in some advanced jurisdictions have already questioned the constitutionality of expedited hearing processes used by securities regulators. Readers may write to Regstreet Law Advisors at info@regstreetlaw.com