The Securities and Exchange Board of India (Sebi) will decide on Monday to increase the quantum of monetary penalty for capital market-related offences, to send a strong warning that it would not tolerate market misconduct.
“Sebi board meets on Monday to approve a proposal that calls for sufficiently high monetary penalty that may act as deterrent for future violations,” said an official.
There has been criticism in the past that the monetary fine imposed by Sebi is low and not commensurate with the offence. It is also less than what its peers in other countries impose: While Sebi’s median penalty is of around 1,500 euros; those by the Financial Services Authority of the UK are in excess of 20,000 euros.
The proposal to hike the penalty is based on the observation and recommendation of Oliver Wyman, a global management consulting firm that was engaged by Sebi to assess its regulatory approach towards enforcement actions.
Oliver Wyman is learnt to have pointed that, while Sebi frequently imposes monetary fines, they are not strong enough to act as deterrent for future violations. It advised Sebi to “Ensure that the degree of monetary penalties is sufficiently high to act as deterrent for future violation.”
Sebi introduced settlement under consent mechanism through a circular on April 20, 2007 and settled 103 cases in 2016-17 and collected consent charges of Rs 13,5 crore.
Further, in a move to reduce pendency of cases at appellate tribunal and Supreme Court, Sebi board is expected to streamline its internal mechanism in a manner that hard enforcement actions (such as prohibition from market activities, monetary fines, civil or criminal proceedings) are not taken against technical or minor offences.
“It would be optimum for Sebi to select only those cases which will send strong signal against market misbehavior, instead of pursuing even technical and venial breach of laws, which may not have desired and significant impact,” said the source.
Around 80 per cent of Sebi’s actions are in the category of hard enforcement action but a large number of cases initiated under them are pending. Initiation of new enforcement proceeding puts strain on Sebi’s available resources and leads to increased litigation before SAT and Supreme Court.
As of March 2017, there are over 600 appeals pending before SAT and Supreme Court.
The official pointed that while Sebi may decide to take administrative action such as issuing warning/caution letter in cases of minor violations, prosecution may be recommended for intentional violations that may have impact on the market and large number of investors or if the offence is repetitive or grave in nature.
Insider trading is one offence which if clearly established may lead to prosecution. In cases where companies are under liquidation/ insolvency proceedings, while adjudication may not be initiated against them, Sebi may examine the liability of the directors and consider enforcement action.
Sebi is also expected to give its nod to a proposal to expedite settlement proceedings for violations relating to late filing of returns and delayed disclosures among others.
Sebi may appoint chief economist
While Sebi’s attempts in the past to appoint a chief economist did not get a warm response, a fresh proposal to appoint a chief economist at par with an executive director at Sebi and with a consolidated pay of Rs 55 lakh per annum will be taken up by the Sebi board on Monday. The appointment of chief economist will be on a contract basis for an initial period of three years. A source close to the development said that with increasingly complex environment, it has become more important for Sebi to further enhance its capabilities in the areas of research, analysis and planning.