Sebi's recent rules increase costs, compliance burden on companies

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The recent changes introduced by the Securities and Exchange Board of India (Sebi) for improving corporate governance and investor protection have increased the compliance burden and associated costs for listed companies, according to India Inc.

Experts said that companies are struggling to prepare themselves for the new regulations, some of which will take effect in a few months, according to a report in The Economic Times (ET).

The new rules include confirmation or denial of market rumours, disclosing business contracts to family settlements, matters concerning senior employees, new environmental, social and governance regulations, and communicating actions taken by any authorities.

Since the start of 2023, the Sebi has issued a record 40 consultation papers, as compared to 19 in 2022 and 24 in 2021. The consultation papers are issued prior to consultations and new rules coming into force.

Ketan Dalal, managing director, Katalyst Advisors, a  Mumbai-based structuring and advisory firm, said that the number of changes made by the Sebi is becoming very challenging for corporates to understand, digest and manage.

"The overall compliance burden and availability of professionals to manage this ecosystem is another challenge,” he said.

Some regulations, especially listing obligations and disclosure requirements (LODR), require people to comprehend and accept them, he added.

According to the ET report, the Sebi stated that it follows a consultation process before implementing any regulation.

“In terms of implementation challenges faced by the industry, the Sebi has recently written to the industry bodies, exchanges, the Institute of Chartered Accountants of India (ICAI), and Institute of Company Secretaries of India (ICSI) to participate in a pilot for the formation of an industry standards forum to be formed under the aegis of the exchanges, chaired by an industry leader with representation from various trade bodies to formulate implementation standards for specific regulations or circulars in consultation with the Sebi," the regulator said.

The regulatory body added that the “industry feedback on the pilot has been positive, with suggestions covering regulations for the pilot. Thus, the Sebi expects to facilitate the first pilot(s) shortly”.