SEBI’s 2023 Amendments on Depositories & Participants: Key Highlights
Introduction: The Securities and Exchange Board of India (SEBI), in its continuous efforts to strengthen the integrity of the Indian financial system, has rolled out a new amendment. Dated 22nd August 2023, this pertains to the SEBI (Depositories and Participants) Regulations, 2018. In this article, we dissect the major components of this amendment and provide an analysis of its implications.
Requirement and Criteria of Fit and Proper:
- Purpose and Application:
- SEBI intends to ensure that applicants, depositories, and their key stakeholders maintain utmost integrity. The fit and proper criteria now cover not just the institutions but also their shareholders, directors, and key managerial personnel.
- Defining a Fit and Proper Person:
- The definition now encapsulates three pillars: financial integrity, a good reputation, and honesty. A person failing any of these can be considered unfit.
- Disqualifications:
- Disqualifications range from convictions in economic offenses, insolvency, orders restricting securities dealings, to being declared a willful defaulter. Importantly, the Board’s orders against a depository will not hamper its operations unless explicitly mentioned.
- Implications for Key Management:
- Any non-compliance by key management can have repercussions not just for the individual but may escalate to the depository level, potentially risking its operations.
- External Regulatory Influence:
- SEBI may now consider orders against a person by other regulatory bodies when determining the fit and proper criteria.
Grammatical Corrections and Additions:
- Regulation Amendments:
- SEBI has made several textual corrections, replacing the term “comprise of” with “consist of” across various regulations.
- Inclusion of 2008 Regulations in Regulation 35:
- In a nod to its earlier regulations, SEBI has incorporated a reference to the SEBI (Intermediaries) Regulations, 2008 within Regulation 35.
Conclusion: SEBI’s 2023 amendments clearly indicate its vision to elevate the standards of stakeholders within the Depositories and Participants ecosystem. By ensuring stringent fit and proper criteria, SEBI aims to bolster investor confidence and uphold the sanctity of the Indian securities market. As always, adherence to these regulations will be instrumental in shaping the future trajectory of depositories and their participants.
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SECURITIES AND EXCHANGE BOARD OF INDIA
NOTIFICATION
Mumbai, the 22nd August, 2023
SECURITIES AND EXCHANGE BOARD OF INDIA (DEPOSITORIES AND PARTICIPANTS) (SECOND AMENDMENT) REGULATIONS, 2023
No. SEBI/LAD-NRO/GN/2023/147.—In exercise of the powers conferred by section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) read with section 25 of the Depositories Act, 1996 (22 of 1996), the Board hereby makes the following regulations to further amend the Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018 namely:
2. These regulations may be called the Securities and Exchange Board of India (Depositories and Participants) (Second Amendment) Regulations, 2023.
They shall come into force on the date of their publication in the Official Gazette.
3. In the Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018-
I. regulation 23 shall be substituted with the following, namely,-
“Requirement and criteria of fit and proper
23(1) (a) The ‘fit and proper person’ criteria shall apply to the applicant, depository, its shareholders, directors and key management personnel at all times.
(b) The depository shall ensure that all its shareholders, directors and key management personnel are fit and proper persons at all times.
(2) For the purpose of these regulations, an applicant, or a depository shall be deemed to be a fit and proper person, if –
(a) such a person has a general reputation and record of fairness and integrity, including but not limited to
(i) financial integrity;
(ii) good reputation and character; and
(iii) honesty;
(b) such a person has not incurred any of the following disqualifications
(i) conviction of the person by a court for any economic offence or an offence of the securities laws;
(ii) an Order for winding up has been passed against the person;
(iii) the person has been declared insolvent and has not been discharged;
(iv) an Order; restraining, prohibiting or debarring the person from dealing in securities or from accessing the securities market, has been passed by the Board and a period of three years from the date of the expiry of the period specified in the Order has not elapsed;
(v) any other Order against the person which has a bearing on the securities market, has been passed by the Board and a period of three years from the date of the Order has not elapsed:
Provided that for the purpose of sub-clauses (iv) and (v), any Order passed by the Board against a depository shall not affect the operation of such a depository unless expressly mentioned in the Order.
(vi) the Board has initiated recovery proceedings under the Act or the Securities and Exchange Board of India Act, 1992 (15 of 1992) that are pending;
(v) the person is not financially sound or has been categorized as a willful defaulter; and
(viii) any other disqualification as may be specified by the Board from time to time.
(3) For the purpose of these regulations, the shareholders, directors or key management personnel of the depository, shall be deemed to be fit and proper if,-
(a) they fulfil the criteria specified under sub-regulation (2) of this regulation; and
(b) they have not been found to be of unsound mind by a court of competent jurisdiction and have not been declared a fugitive economic offender; and
(c) they have not been convicted of an offence involving moral turpitude.
(4) If any director or key management personnel of a depository is not deemed to be fit and proper under sub-regulation (3), the depository shall replace such a person within thirty days from the date of such disqualification, failing which the fit and proper person criteria may be invoked against the depository.
(5) Any disqualification of the depository under sub-regulation (2) shall not have any bearing on the fit and proper status of the directors or key management personnel unless the directors or key management personnel are also found to incur the same disqualification in the said matter.
(6) An order passed against the person by any other regulatory authority may be taken into account by the Board while determining the fit and proper person criteria.
(7) If any question arises on the decision of a depository as to whether a person is a fit and proper person, the decision of the Board on such question shall be final.”
II. in regulation 24, in sub-regulation (14),
(i) in clause (a), the words “comprise of”, wherever they occur, shall be substituted with the words “consist of”
(ii) in the proviso to clause (b), the words “comprises of” shall be substituted with the words “consists of”
III. in regulation 28, in sub-regulation (6), the word “comprise of” shall be substituted with the words “consist of”
IV. in regulation 30, in sub-regulations (2) and (3), the words “comprising of” shall be substituted with the words “consisting of”
V. in regulation 35, in clause (d), after the words “fit and proper person” and before the word and symbol “; and” the words and symbol “under the Securities and Exchange Board of India (Intermediaries) Regulations, 2008” shall be inserted.
BABITHA RAYUDU, Executive Director
[ADVT.-III/4/Exty./366/2023-24]
Footnote:
1. The Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018 were published in the Gazette of India on October 3, 2018 vide No. No. SEBI/LAD-NRO/GN/201 8/40.
2. The Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018 were subsequently amended on, –
a. 4th June, 2019 by the Securities and Exchange Board of India (Depositories and Participants) (Amendment) Regulations, 2019 vide No. SEBI/LAD-NRO/GN/2019/20.
b. 21st February, 2020 by the Securities and Exchange Board of India (Depositories and Participants) (Amendment) Regulations, 2020 vide No. SEBI/LAD-NRO/GN/2020/04.
c. 17th April, 2020, by the Securities and Exchange Board of India (Regulatory Sandbox) (Amendment) Regulations, 2020, vide No. SEBI/LAD-NRO/GN/2020/10.
d. 5th May, 2021, by the Securities and Exchange Board of India (Payment of Fees and Mode of Payment) (Amendment) Regulations 2021, vide No. SEBI/LAD-NRO/GN/202 1/23.
e. 3rd August, 2021, by the Securities and Exchange Board of India (Regulatory Sandbox) (Amendment) Regulations, 2021, vide No. SEBI/LAD-NRO/GN/202 1/30.
f. 13st August, 2021 by the Securities and Exchange Board of India (Depositories and Participants) (Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/202 1/43.
g. 26th October 2021 by the Securities and Exchange Board of India (Depositories and Participants) (Second Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/2021/53.
h. 23rd February 2022 by the Securities and Exchange Board of India (Depositories and Participants) (Amendment) Regulations, 2022 vide No. SEBI/LAD-NRO/GN/2022/74.
i. 2nd March 2023 by the Securities and Exchange Board of India (Depositories and Participants) (Amendment) Regulations, 2023 vide No. SEBI/LAD-NRO/GN/2023/125.
