The proposal for amendments to the SEBI (Intermediaries) Regulations, 2008, aims to incorporate provisions for summary proceedings to enhance the efficiency of addressing certain violations of securities laws by intermediaries. Historically, summary proceedings were part of earlier regulations but were removed with the introduction of the Intermediaries Regulations. The absence of a streamlined process has led to delays in addressing straightforward violations such as non-payment of fees and failure to submit required reports. The proposed amendments intend to create a framework for handling such clear-cut cases more efficiently, saving time and resources for both SEBI and the intermediaries involved. Public consultation was initiated to gather feedback on the proposals, with most respondents agreeing that the summary procedure would improve enforcement actions. The amendments outline specific violations eligible for summary proceedings and establish timelines for responses and decisions, aiming to maintain market integrity and protect investor interests. The draft provisions are designed to ensure that the summary process is only applicable where violations are evident or acknowledged, thus safeguarding the rights of intermediaries while facilitating timely regulatory actions. The proposal is a response to the increasing number of intermediaries and associated violations, emphasizing a more effective regulatory approach to maintain the integrity of the securities market.
Securities and Exchange Board of India
Monday 30th September – SEBI Board Meeting
Proposal for amendments to the SEBI (Intermediaries) Regulations, 2008 for inclusion of the provisions for summary proceedings
1. Objective
1.1. This memorandum seeks approval of the Board for the amendment to the SEBI (Intermediaries) Regulations, 2008 (hereinafter referred to as ‘Intermediaries Regulations’) for inclusion of the provisions for the summary proceedings to handle the cases of certain violations of securities laws by Intermediaries, in an expeditious and more efficient manner and thereby enhancing the Board’s ability to act swiftly in protecting the interest of investors and maintaining integrity, transparency and efficiency of the securities market.
2. Background
2.1. Summary proceedings were earlier part of Chapter III of the erstwhile SEBI (Procedure of Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 hereinafter referred to as ‘Enquiry Regulations’). However, with the promulgation of the Intermediaries Regulations in 2008, the said regulations were repealed in May 2008. The provisions of the enquiry proceedings under erstwhile Enquiry Regulations were suitably modified and incorporated under the Intermediaries Regulations to provide for the simpler process for suspension and revocation of the certificate of registration. However, Intermediaries Regulations did not provide for the provisions for the summary proceedings.
2.2. Subsequently, it was noted that there were certain cases such as expulsion as a member by stock exchange(s) or clearing corporation(s), termination of depository agreements wherein the existing procedure was found to be long-drawn and not apt for the violations of such obvious nature. Accordingly, provisions under Regulations 30A akin to the summary proceedings were introduced under the Intermediaries regulations to provide for the process for cancellation of certification of registration in these cases.
2.3. Over a period of time, it is noted that there are also certain other cases wherein the violations are obvious in nature or are either accepted by the Intermediary and/or need minimal documents or evidence to corroborate the facts.
2.4. Some of the cases of such violations include the following-
i. Non-payment of fees to keep registration in force: Certificate of registration granted to intermediaries is permanent in nature, however, they are required to pay the fees at certain interval to keep their registration in force. There have been number of instances wherein intermediaries have not paid fees to keep their registration in force and hence their registration as an intermediary has expired.
ii. Failure to submit the periodic reports: Intermediaries have failed to submit periodic reports within the given timeline specified by SEBI.
iii. Failure to obtain membership of Investment Adviser Administration and Supervision Body (IAASB): In terms of the SEBI (Investment Advisers) (Amendment) Regulations, 2021, registered investment advisors were required to take membership of the Investment Adviser Administration and Supervision Body (IAASB). It was a pre-requisite to keep their registration in force as an Investment Advisor. A couple of hundred entities have not sought registration with the IAASB in the given timeline, thus their registration with the Board is not valid.
2.5. Cancellation of the certificate of registration shall entail the current procedure under Chapter V of the Intermediaries Regulations. The procedure requires the appointment of multiple Designated Authorities (DAs) even for the similar violations. It requires DA to issue Show-Cause Notice (SCN), provide the inspection of documents and personal hearing to the noticee. DA is further required to recommend an action to the Competent Authority (CA). Thereafter, CA also issues SCN and may grant a personal hearing to the noticee before passing the final order.
2.6. Thus, while the general procedure shall continue to be applicable to all other cases, it may not be apt for the cases where there is no dispute about the violation and such violations are obvious in nature or are either accepted by the intermediary and/or need minimal documents or evidence to corroborate the facts. The use of summary proceedings in these cases can save considerable time and resources of the SEBI and even of the intermediary.
2.7. It may be noted that SEBI has also proposed to provide considerable relaxations for registration as investment advisers (IAs) and research analysts (RAs) to boost their numbers commensurate with growth of the domestic investor base. The increase in number of these intermediaries may substantially increase the instances of such violations.
2.8. (This has been excised for reasons of confidentiality).
2.9. Considering the above, it is proposed to widen the scope of Regulation 30A of the Intermediaries Regulations to include the specific provisions for summary proceedings to streamline the regulatory process for handling the aforesaid kind of violations by intermediaries, thereby enhancing the Board’s ability to act swiftly in protecting investors and maintaining market integrity.
3. Public consultation:
3.1. In order to seek the public opinion on the proposed provisions for summary proceedings, a consultation paper on the captioned subject matter was issued on July 16, 2024 (Annexure A) inviting comments regarding the proposals in the consultation paper.
3.2. The consultation paper contained the brief of proposals on the provisions of summary proceedings. It was mentioned in the consultation paper that the proposed provisions shall include the provisions for identifying the cases for summary proceedings and provisions detailing the summary procedure. These provisions shall outline the process for issuing notices, submission timeline, the timeline for passing the order, obligations that the intermediary needs to satisfy upon passing the order and post-cancellation of certificate, and the manner of intimation of the order to the intermediary.
3.3. It was proposed that the provisions of the proposed summary proceedings shall apply to the following cases-
i. expulsion as a member by stock exchange(s) or clearing corporation(s),
ii. termination of depository agreements,
iii. claims of returns or performance which are not permitted by the Board,i.
iv claims of returns or performance which are found to be false by the Board or an agency as may be specified by the SEBI,
v. non-payment of specified fees such as payment of fees for keeping the registration in force,
vi. intermediary not being traceable,
vii. failure to submit periodic reports for three or such consecutive periods as may be specified by the SEBI,
viii. cases where intermediary has admitted the violation.
3.4. It was proposed that in terms of these provisions-
i. An Intermediary shall be provided twenty-one days from the date of receipt to provide its submission through a written response.
ii. The competent authority shall endeavor to pass an order within twenty-one days from the date of receipt of response of the intermediary or the date of expiry of the time period allowed to file the written response.
iii. The competent authority may pass an appropriate order of cancellation or suspension of the certificate of registration of the intermediary or any other order, as deemed fit.
iv. The competent authority may, while passing the order, require the intermediary to satisfy certain conditions.
v. The copy of the order shall be sent to the intermediary and uploaded on the website of SEBI. The copy of the order shall also be sent to the stock exchange(s) or the clearing corporation(s) or the depository(ies) or the body recognised by SEBI for administration and supervision of intermediary, as the case may be, and they shall upload the copy of the order on their websites.
3.5. It was mentioned that the proposed provisions for summary proceedings shall substitute the existing Regulation 30A of Intermediaries Regulations. The draft of the proposed new provisions of Regulation 30A of the Intermediaries Regulations was included in the Annexure A of the consultation paper.
4. Analysis of public comments:
4.1. Total 12 entities/persons provided their responses to the proposals in the consultation paper (The brief summary of the comments received on the consultation paper is placed at Annexure B), including from intermediaries and law firms. From the responses received, the following has been noted-
i. 6 out of 7 (86%) respondents agreed that the proposed provisions shall help to take enforcement action in expeditious and efficient manner to handle cases related to violations in the specified cases and that the swift and timely action shall help to maintain the integrity, transparency and efficiency of the securities
ii. 7 out of the 10 respondents (70%) agreed that the summary proceedings may be applicable to the cases referred in the consultation paper.
iii. 7 out of the 9 (78%) respondents agree that the twenty-one-day timeline provided to the noticee to submit the written response is sufficient.
iv. 6 out of the 8 (75%) respondents agree that the factors (mentioned in Annexure A to the consultation paper) that the Board may require the intermediary to satisfy while passing the order are adequately covered under the proposed provisions.
v. 4 of 6 respondents (67%) agree that the obligations (mentioned in Annexure A to the consultation paper) that the intermediaries are required to fulfil post‑ cancellation of the certificate of registration are adequately covered in proposed provisions.
Based on the analysis of the responses received, it can be stated that the respondents broadly agree with the proposed provisions of the summary proceedings.
Some of the respondents have also provided certain comments and suggestions on the proposals in the consultation paper. Key comments/ suggestions received on the consultation paper and SEBI’s responses to them are mentioned below:
| Sr. No. | Comments/suggestion | SEBI’s Response |
| 1 | Summary procedure should only be applied in cases which do not require a detailed consideration of facts or law. Further, in order that there is no misuse of summary procedure, the cases and the procedure may be defined clearly to leave no scope of ambiguity to secure intermediaries right to natural justice. | SEBI agrees with the comment. The proposed cases that can be considered under summary proceedings include only cases where violations are either accepted by the client or can be established without any ambiguity. It also provides opportunity to the noticee to submit written response and details the procedure for proceedings. The concerns are already addressed in the proposed provisions. |
| 2
|
Cases of ‘claims of returns or performance which are not permitted by the Board or are found to be false or misleading by the Board or an agency as may be specified by the SEBI’ are not suitable for summary procedure since these alleged violations may require detailed deliberation and examination of documents. Allegations would be subjective in nature and open to dispute. | The intermediaries such as portfolio managers, mutual funds are allowed to make claims as per the methodology prescribed under their respective regulations. (This has been excised for reasons of confidentiality).
Further, after deliberations, the words ‘misleading’ are removed to avoid ambiguity. |
| 3 | In cases of ‘non-payment of specified fees’ and ‘failure to submit periodic reports for three or such consecutive period as may be specified by SEBI’, summary procedure should only be adopted where the intermediary has failed to pay fees or submit period reports despite a prior written intimation to do so by the Board. | The registration granted to the intermediary is subject to condition that the intermediary shall pay the renewal fees as specified by SEBI within specified period before the expiry of the period for which fee has been paid. This condition is also mentioned on the certificate of registration granted to the Intermediary. It is the responsibility of the intermediary to submit the renewal fees within the specified period in order to keep its registration in force. Though system generated alerts are triggered to provide reminder to the intermediary to pay the fee that is due to keep its registration in force, there shall not be any obligation on SEBI to provide any reminder including prior written intimation before initiating summary proceedings in these cases.Similarly, it is responsibility of the intermediary to provide the periodic reports within given time line. It may be noted that summary proceedings may be initiated only if an intermediary fail to submit periodic reports for three consecutive periods or such other period(s) as may be specified SEBI.Though, SEBI shall take necessary steps to trigger an alert for reminder of submission of periodic reports, there shall not be any obligation on SEBI to provide any reminder including prior written intimation for submission of periodic reports. |
| 4 | ‘The cases where intermediary has admitted the violation’ shouldnot be included in summary procedure as -:a) The meaning of admitted and what exactly amounts to admission is not defined.b) Any statement or pleading made in the course of surveillance, inspection, in response to any other notice or any other proceedings should not be construed as admission for the purposes of this Regulation.c) The SEBI Act, 1992 provides for detailed adjudication and/or enquiry proceedings and consequent enforcement actions/ punishment/ penalty under the SEBI Act, 1992 for admission of violation and for admission of violation made in the course of such proceedings. To this extent, not only is the proposed Regulation overlapping and inconsistent with SEBI Act, 1992, but also greatly curbs the intermediary’s right to natural justice embedded in the adjudication! enquiry proceedings under the SEBI Act, 1992. d) The said proposed Regulation should include a proviso stating that any statement made in any other proceedings or before any other authority would not amount to admission of violation. Further that payment of a penalty pursuant to an Order or a settlement would not amount to admission of any violation or admission to any violation. |
The proposed cases that can be considered under summary proceedings include cases where violations are either accepted by the client or can be established without any ambiguity. It also provides opportunity to submit written response and details the procedure for proceedings. The admissions of violations made during the course of ongoing adjudication and/or enquiry proceedings shall continue to be handled in terms of existing provisions concurrent with the other violations.
Settlement proceedings are governed under SEBI (settlement proceedings) regulations, 2018. Under the provisions of these regulations, person against whom any specified proceedings have been initiated and are pending or may be initiated, may make an application to the Board for settlement. While applying for the settlement under these regulations, the applicant may ‘admit the findings of fact and conclusions of law’or ‘neither admit nor deny the findings of fact and conclusions of law’. The applicant may make one application for settlement of all the proceedings that have been initiated or may be initiated in respect of the same cause of action. The pending proceedings in respect of which the settlement application is received are disposed by an appropriate order, on the basis of the approved settlement terms. The settlement order passed under these regulations inter alia states the details of the alleged default(s), circumstances relevant to the alleged default, the admissions made by the applicant, if any. The outcome of the summary proceedings is cancellation/suspension as well as directions (including administrative warning). Standard Operating Procedure (SOP) would be put in place to ensure that the outcome of the summary proceeding is proportionate to the nature of violation which has been admitted. |
| 5 | Intermediaries are required to report violations or non- compliances observed by them to SEBI either in periodic reports or forthwith. The violations could be operational in nature or honest mistakes for which corrective actions would already be taken. If summary proceedings are initiated based on those reports, it would defeat the purpose of such self- reporting. | For any violations observed, an opportunity of written submission is provided under summary proceedings and the competent authority may pass an appropriate order after considering the facts and circumstances of the case.
The outcome of the summary proceedings is cancellation/suspension as well as directions (including administrative warning). Standard Operating Procedure (SOP) would be put in place to ensure that the outcome of the summary proceeding is proportionate to the nature of violation which has been admitted. |
| 6 | In cases of ‘intermediaries which are not traceable’, the definition of traceable or the criteria of traceability in terms of the proposed regulation may be specified. | Intermediary shall be considered not traceable if it cannot be reached at physical address and e-mail address available on SEBI record as provided/updated by the intermediary. The same has been incorporated in the revised draft amendments. |
| 7 | In cases of expulsion of membership of stock exchange or clearing corporation or termination of depository agreement, cases where the intermediary is not traceable and cases where the violations have been admitted by the intermediary, the matter may be directly decided by SEBI without seeking any response from intermediary as in these cases entity has already accepted violation or no notice can be served or the prior requirement of the membership of stock exchange clearing corporation or depository agreement has already ceased. | A fair opportunity to provide submissions is envisaged even under the summary proceedings and hence the suggestions may not be agreed to. |
| 8 | There should be provision for (a) discretion of SEBI to give an opportunity for hearing and (b) to extend the specified timeline, in genuine cases to balance regulatory efficiency with fairness to intermediaries.
45 to 60 days’ time may be given to make written submissions from the date of the notice |
The cases that can be considered under summary proceedings include only cases where violations are either accepted by the client or can be established without any ambiguity. It also provides opportunity to the noticee to submit written response. Personal hearing shall defeat the purpose of the summary proceedings. However, as suggested, we may agrees with the suggestion that the competent authority may for the reasons to be recorded, provide an extension in timeline to submit written response beyond 21 days but not exceeding further period of 15 calendar days. |
| 9 | There is no provision for Appeal in Summary Proceedings | Summary proceedings are enforcement actions and intermediary shall have the right to appeal before Hon’ble SAT as in case of any other enforcement action. |
of confidentiality)
5. Proposals for consideration and approval of the Board:
6.1. In order to handle the cases of certain violations of the securities laws by intermediaries, in a faster and more efficient manner and thereby enhancing the Board’s ability to act swiftly in protecting the interest of investors and maintaining integrity, transparency and efficiency of the securities market, it is proposed to have provisions for summary proceedings.
6.2. (Amendments shall be notified after following the due process)
6.3. The provisions of summary proceedings shall provide the process for issuing notice, timeline for submission of response, the timeline for passing the order, conditions and the obligations that the intermediary needs to satisfy while passing the order and post-cancellation of certificate, and the manner of intimation of the order to the intermediary.
6.4. It is proposed that in terms of these provisions-
i. An intermediary shall be provided twenty-one days from the date of receipt to provide its submission through a written response. An extension in timeline not exceeding additional 15 calendar days to submit written response may be provided by the competent authority.
ii. The competent authority shall endeavor to pass an order within twenty-one days from the date of receipt of response of the intermediary or the date of expiry of the time period allowed to file the written response.
iii. The competent authority may pass an appropriate order of cancellation or suspension of the certificate of registration of the intermediary or any other order, as deemed fit.
iv. The competent authority may, while passing the order, require the intermediary to satisfy certain conditions.
v. The copy of the order shall be sent to the intermediary and uploaded on the website of SEBI. The copy of the order shall also be sent to the stock exchange(s) or the clearing corporation(s) or the depository(ies) or the body recognised by SEBI for administration and supervision of intermediary, as the case may be, and they shall upload the copy of the order on their websites.
6.5. It is proposed to implement the above proposal by making the amendments to Intermediaries Regulations to substitute the existing Regulation 30A of Intermediaries Regulations with the proposed provisions for summary proceedings. The draft amendment to the Intermediaries Regulations are placed at Annexure C.
6.6. The amendments to the Intermediaries Regulations are proposed to be effective from the date of their publication in the official gazette.
7. Proposal
7.1. The Board is requested to consider and approve the proposals at paragraphs 6.1 to 6.6 mentioned above in the Memorandum and authorize the Chairperson to carry out suitable amendments to the regulations and to take any other consequential or incidental steps for implementation of the decisions of the Board.
Annexure A
(Consultation paper is available on SEBI website www.sebi.gov.in at Reports & Statistics » Reports » Reports for Public Comments)
Annexure B
(This has been excised for reasons of confidentiality)
Annexure C
(Amendments shall be notified after following the due process)
