Sebi strengthens procedures for transfer of securities, dividend payment

Markets regulator Sebi on Friday put in place detailed guidelines to streamline and strengthen procedures with regard to handling and maintenance of records, transfer of securities, and payment of dividend by registrar and share transfer agents.

Besides, the norms are applicable for issuer companies and bankers to an issue.

The guidelines will broadly deal with areas like payment of dividend, interest and redemption; correction of errors; and compulsory internal audit of RTAs (registrar and share transfer agents), Sebi said in a circular.

The prescribed documents need to be maintained for period not less than eight years after completion of the relevant transactions by bankers to an issue, issuer companies or by RTAs on behalf of such firms.

Also, issuer companies will have to strictly monitor the activities of their RTAs. In case, share transfer agent activities are carried out in-house by issuer companies, then such firms need to ensure that their in-house share transfer activities comply with the relevant norms as applicable to them.

According to Sebi, RTAs, bankers to issue, and the issuer companies can put in place more stringent internal checks and controls if they so desire.

The issuer company, RTA and the dividend, interest, and redemption processing Bank will have to ensure that the master file, having detailed list of beneficiaries of dividend or redemption, need to include company name, folio number, account details among others. The file need to be shared with the banker through a secured process.

Processing bank will have to ensure that any dividend, interest and redemption instrument lying unpaid beyond the validity period of the instrument need to be cancelled.

Besides, such amount that has been transferred earlier by issuer in the said account will have be credited back immediately to the issuer company. This provision will come into effect after 30 days.

RTAs and issuer companies will have to ensure that a folio once allotted to a person should never be re-allotted to any other person under any circumstances, Sebi noted.

"RTAs and Issuer Companies shall ensure that all updation in the folio records shall be enabled only through front end modules. No back-end entry/updation /correction should be permitted," Sebi said, adding that this provision will come into effect after 90 days.

For any correction of errors, Sebi said the RTAs must take prior approval from the company similar to cases of transfers and transmissions.

Under the new norms, the issuer company and RTAs will have to exercise enhanced due diligence where dividend, interest and redemption remains unpaid for at least three years; PAN as well bank account details not available in the folio.

RTAs need to maintain a list of such account folios and share with the issuer company at the end of every quarter of a financial year.

According to Sebi, all RTAs are required to carry out internal audit on annual basis by independent qualified Chartered Accountants or Company Secretaries or Cost and Management Accountants who do not have any conflict of interest.

Such auditors will have a minimum experience of three years in the financial sector and need to be appointed for a maximum term of five years, with a cooling-off period of two years.

The RTA will have to submit a copy of report of the internal audit to issuer company within three months from the end of the financial year.

Besides, the governing council -- comprises board of directors, board of partners, proprietor-- of the RTA will have to consider the report of the internal auditor and take steps to rectify the deficiencies, if any.

The RTA will have to send the Action Taken Report to issuer company within next one month and a copy need to be maintained by it. The audit observations along with the corrective steps taken by the RTA need to be placed before the the issuer company's board of directors.