SEBI introduces the Settlement Proceedings Regulations 2018

The Securities and Exchange Board of India announced the introduction of the SEBI (Settlement Proceedings) Regulations 2018, on November 30, 2018. Replacing the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014, it will take effect from January 1, 2019.

As per the new rules outlined, a default will not be settled if SEBI opines that it has caused losses to a large number of investors and has compromised the integrity of the market. There will also be no room for the settlement of offences by persons falling into a certain category. The SEBI will not be settling those proceedings where the applicant is known to be a wilful defaulter or is a fugitive economic offender. This rule also extends to those people who have been found to default in the payment of any penalty or fee imposed under the securities law.

There has been an extension to the boundaries encompassing the term “Securities Laws”. The new regulation defines “securities laws” to include any “other law which is administered by the Board and is relevant to the rules and regulations thereunder”. SEBI is also allowed to settle, or subject to certain exception, any proceedings that have contributed towards the violation of the “securities laws”. In order to benefit the applicants who cooperative in providing “substantial assistance in the investigation, inspection, inquiry or audit, which is to be initiated or is already ongoing, against any other person with regards to the violation of the securities laws”. The new changes are aligned with the global practices of securities regulators.

The SEBI settlement terms will include both monetary as well as non-monetary elements along with the possibility of a combination of both. Suspension or cessation of business operation for a certain period of time will qualify for non-monetary terms. This category will also include offences like “submission of incorrect or enhanced internal audit and reporting requirements, exit from the management of a company, disgorgement on account of the action or inaction of the applicant, locking in securities, etc”.

The move is hailed one going in the right direction as this will ensure repeat offenders and those committing serious offences are prohibited from making use of the settlement clause.