Source: Mint 

Why in News? 

SEBI (Securities and Exchange Board of India) has released a consultation paper proposing summary proceedings for minor violations by market intermediaries. The proposed changes aim to streamline the resolution process, potentially concluding cases within 50 days instead of the current lengthy timelines. This amendment aligns with global regulatory practices and is intended to make enforcement more efficient while protecting investor interests and enhance regulatory efficiency. 

What is the Concept of Summary Proceedings under SEBI? 

• Summary proceedings are a proposed legal framework to handle certain violations by market intermediaries more swiftly and efficiently. 
• They are intended for obvious violations or those that need minimal evidence to prove. 
• Cases eligible for summary proceedings include:  
  • Expulsion of members by stock exchanges or clearing corporations 
  • Termination of depository agreements 
  • Non-payment of registration fees 
  • Failure to submit periodic reports 
  • Making false or misleading claims about returns or performance 
• The process involves:  
  • Issuing a notice to the intermediary 
  • Allowing 21 days for written response 
  • No personal hearings 
  • Aiming to pass an order within 21 days of receiving the response 
• Possible outcomes include cancellation or suspension of registration, or other appropriate orders. 
• The purpose is to regulatory processes, ensure uniform treatment of similar violations, and enhance SEBI's ability to protect investors and maintain market integrity. 

What is the Objective of Summary Proceedings in SEBI? 

• The primary goal is to create a faster, more efficient mechanism for dealing with certain clear-cut violations by market intermediaries, thereby improving SEBI's regulatory effectiveness and market protection capabilities. 
  • To handle certain violations of securities laws by intermediaries more quickly and efficiently. 
  • To enhance SEBI's ability to act swiftly in protecting investor interests. 
  • To maintain the integrity, transparency, and efficiency of the securities market. 
  • To streamline the regulatory process for specific types of violations. 
  • To propose legal changes in the SEBI (Intermediaries) Regulations, 2008 to include provisions for summary proceedings. 
  • To seek public comments on these proposed changes, ensuring transparency in the regulatory process. 
  • To address obvious or easily proven violations without the need for lengthy procedures. 
  • To align SEBI's practices with global standards for efficient market oversight. 

What was the Background for Summary proceedings in SEBI? 

• Summary proceedings were part of SEBI regulations until 2008, when they were repealed with the introduction of the Intermediaries Regulations. 
• SEBI has observed an increase in obvious violations that require minimal evidence or are admitted by intermediaries. 
• Common violations include:  
  • Non-payment of fees to maintain registration 
  • Failure to submit periodic reports within specified timelines 
  • Investment advisors not registering with the IAASB as required by 2020 regulations 
• The current procedure for cancelling registrations, even for clear violations, is lengthy and resource-intensive, as outlined in Chapter V of the Intermediaries Regulations. 
• For mass non-compliance cases, like the hundreds of investment advisors who didn't register with IAASB (International Auditing and Assurance Standards Board), separate proceedings are required for each entity, involving multiple authorities. 
• SEBI is now proposing to reintroduce summary proceedings to handle these clear-cut violations more efficiently, aiming to streamline the regulatory process and better allocate resources. 

What was the Need for Summary Procedure in SEBI? 

• Current procedures under Chapter V of Intermediaries Regulations are time-consuming, inefficient, and cumbersome for obvious violations. 
• Section 30A deals with Summary proceedings of cases and procedure. 
• Summary proceedings are proposed for violations that are obvious, admitted, or require minimal evidence. 
• Swift action is crucial for maintaining market integrity, transparency, and efficiency. 
• Summary proceedings aim to handle violations more expeditiously and efficiently than current processes. 
• They ensure uniform treatment of similar violations and reduce the lengthy enforcement process. 
• This approach was previously part of SEBI regulations until 2008 and is now being reintroduced. 
• Summary proceedings offer entities an opportunity to submit reasons why proceedings should not be concluded against them. 
• The goal is to streamline the regulatory process, enhancing SEBI's ability to act swiftly in protecting investors and maintaining market integrity. 
• This method is designed for swift resolution without the need for a full trial, addressing obvious or admitted violations more efficiently. 

Which Type of Cases will be Covered under the Summary Procedure? 

• Stockbroker or Clearing Member Expelled 
  • A stockbroker or a clearing member, in respect of which intimation has been received by the Board from all the stock exchange(s) or the clearing corporation(s), as the case may be, of which it is a member, that such stockbroker or clearing member has been expelled as its member. 
• Depository Participant Termination 
  • A depository participant, in respect of which intimation has been received by the Board from all the depository(ies) where the participant is admitted, that the depository participant agreement has been terminated by the depository(ies). 
• Intermediary Claiming Returns or Performance 
  • An intermediary found to have made claim(s) of return or performance in respect of or related to a security or securities unless otherwise permitted by the Board to make such claim(s). 
• Intermediary Making False or Misleading Claims 
  • An intermediary found, by the Board or by such an agency as may be specified by the Board, to have made false or misleading claim(s) of return or performance in respect of or related to a security or securities. 
• Intermediary Failing to Pay Fees 
  • An intermediary which fails to pay fees to the Board or to such body as may be specified, in terms of provisions of the relevant regulations governing such intermediary. 
• Untraceable Intermediary 
  • An intermediary which is not traceable. 
• Intermediary Failing to Submit Reports 
  • An intermediary which has failed to submit periodic reports for three consecutive periods, or such other period(s) as may be specified, to the Board in terms of provisions of the relevant regulations governing such intermediary or the circular(s) issued thereunder. 
• Intermediary Violating Securities Laws 
  • An intermediary admitted violating any of the securities laws or directions, instructions or circulars issued by the Board.  

What is the Procedure for Summary Proceeding? 

• The competent authority issues a notice to the intermediary concerned, stating the grounds for initiating proceedings and the alleged violation. 
• The intermediary has 21 days from receipt of the notice to submit a written response with any documentary evidence. 
• No further opportunities or hearings are granted beyond this 21-day period. 
• The competent authority considers the case facts, material on record, and written submissions (if any). 
• An order is to be passed within 21 days of either:  
  • Receiving the intermediary's written submissions, or  
  • The expiry of the submission deadline if no response is filed. 
• The order may cancel or suspend the intermediary's registration certificate or impose other appropriate measures. 
• The authority may impose conditions to protect investor interests, clients, or the securities market. 
• The intermediary may be required to satisfy the Board on various factors, including record maintenance, grievance redressal, and client service continuity. 
• If registration is cancelled, the intermediary must immediately cease activities, return the certificate, transfer activities or allow clients to withdraw funds/securities, and handle any incurred liabilities. 
• The order is sent to the intermediary and uploaded on SEBI's website. 
• Copies of cancellation orders are also sent to relevant stock exchanges, clearing corporations, depositories, or supervisory bodies for publication on their websites. 

How do the Proposed Summary Proceedings Align with Global Standards? 

• Global Trend: The move towards summary proceedings reflects a global trend in regulatory practices for more efficient market oversight. 
• International Alignment: This approach aligns with practices of international regulatory bodies such as the Securities and Exchange Commission (SEC) in the US and the Financial Conduct Authority (FCA) in the UK. 
• Efficient Regulatory Enforcement: Regulatory bodies worldwide are employing summary or expedited procedures to ensure compliance and protect market integrity. 
• Balance of Swift Justice and Due Process: The aim is to strike a balance between swift justice and thorough due process, which is a common goal in global regulatory frameworks. 
• Streamlined Enforcement: The proposed changes aim to cut down lengthy processes, aligning with global practices for faster and more efficient regulatory enforcement. 
• Protection of Investor Interests: The focus on swift action to protect investor interests is consistent with international regulatory objectives.