Sebi, bourses align penalty framework to ease brokers' compliance

New Sebi framework aims to reduce duplication of penalties, bring uniformity across exchanges, and ease compliance for brokerage firms

The Securities and Exchange Board of India (Sebi) and stock exchanges have rationalised and standardised the framework for penalties imposed on stock brokers. The revised framework, issued on October 10, aims to bring uniformity, reduce duplications, and limit reputational risks for brokerage firms. 

 

Under the current framework, penalties for similar observations often differed across exchanges under the existing framework, and brokers with memberships in multiple exchanges could be penalised more than once for the same issue.

 

To review this system, Sebi had set up a working group comprising representatives from the exchanges and broker associations. The recommendations of this group have now been incorporated into the new framework. 

 

Under the revised structure, penalties will be imposed only by a lead exchange for violations common across multiple exchanges, eliminating the risk of multiple penalties. In addition, the term “penalty” for minor procedural or technical lapses has been replaced with “financial disincentive” to avoid unnecessary reputational impact. 

 

Other changes include replacement of monetary penalties with advisories or warnings for first-time procedural lapses; reduction in penalty amounts and introduction of caps for certain violations; removal of penalties on 40 types of violations and rationalisation of others. 

 

Sebi and exchanges reviewed a total of 235 penalty items. Out of these, 105 minor violations will now be termed as financial disincentives, while only 90 violations will continue to attract penalties. Of these, 36 have been rationalised, seven replaced with advisories for first-time offences, six capped, and 12 new penalties introduced. 

 

The new framework will also apply to ongoing enforcement proceedings, offering immediate relief to stock brokers. Sebi said the rationalised approach will “facilitate ease of doing business and ease of compliance” for intermediaries.