Sebi working on norms to incorporate new powers

Sebi, among other new powers, is now allowed to access information, records of any person, including banks

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The market regulator, Securities and Exchange Board of India (Sebi), is framing new regulations and operational framework to start exercising the powers that it has been newly bestowed with. A team at Sebi is said to be working on at least two new set of regulations that will enable it to conduct search and seizure operations and recover money through disgorgement, sources said. Disgorgement is to repay ill-gotten gains to those affected. Also, new systems are being put in place for early detection and crackdown of collective investment schemes (CIS).

The Sebi board, which met a fortnight back, deliberated on the ordinance promulgated on July 18 and discussed the follow-up action that needs to be taken on its part.

The Centre has provided Sebi with more teeth to effectively act against violators by conducting search and seizure operations and to recover dues from them by attachment and sale of assets.

FRAMING NEW REGULATIONS

• A team at Sebi is working on two new set of regulations that will enable it to conduct search and seizure operations and recover money through disgorgement
• New systems are being put in place for early detection and crackdown of collective investment schemes
• Earlier, Sebi had to conduct search and seizure operations with the approval of a magistrate

Sebi has now been allowed to access information and records of any person, including a bank, where it feels it’s relevant for any investigation with respect to a transaction related to the securities market. It also has been allowed to enter and search for documents in any building, vessel or aircraft or break open a lock. In cases where a person fails to pay the penalty imposed by Sebi or fails to comply with the disgorgement order, Sebi can now recover dues by attachment or sale of immovable or movable property, bank accounts or even detain the person.

Earlier, the market regulator had to conduct search and seizure operations with the approval of a magistrate. Sebi, which didn't have the income-tax department like powers, had to depend on courts to impound assets. There have been instances where shares were lying in the demat account of the defaulter, but Sebi hasn't been able to sell them to recover dues. The regulator is to recover penalties totaling Rs 125 crore from violators against whom it has already passed orders.

Experts said regulations on disgorgement will be critical, especially how Sebi's decides to compensate those affected by any fraud or violation of securities law.

“What will be important is how the new powers will be used from an investors' perspective. Sebi will have to state how the disgorgement money will be utilised or how investors who have lost money will be compensated,” said M S Sahoo, secretary, Institute of Company Secretaries of India (ICSI).

Sebi is said to be working on the operational framework and the processes that need to be followed by its officials to ensure that the powers are not misused by them.

“Sebi will have to specify steps to conduct search and seizure operations to avoid misuse. You should have a reasonable process when you are searching someone's premises. Without that, it will be like headless chicken,” said J N Gupta, founder and chairman, Stakeholders Empowerment Services, a proxy advisory firm.

Other areas where Sebi could announce changes in the depository regulations, consent regulations, which have now been given legal sanity and also on establishment of new courts for providing speedy trial of offences.