5. It is also worth reviewing the background of these
regulations in terms of what SEBI stated in its Consultative Paper in July 2007
as to the intention of the regulations :
“2. In the past 15 years SEBI has notified more than a
dozen regulations, each with the objective of regulating a different category
of intermediary/entity. As each of these regulations was drafted in order to
provide a framework which would enable SEBI to better regulate and monitor
intermediaries/entities, the broad framework of such regulations is very
similar to one another.
3. It has been observed that every regulation seeking to
regulate an intermediary incorporates some basic provisions regarding
registration, general obligations, inspection and investigation, default, etc.
In addition to the above, the general requirements of the Code of Conduct
provided in almost all the regulations are also similar in nature. Except for
the clauses relating to the specific requirements of, and particular concerns
in, each category, the content of all the regulations is common either in
language or in spirit, if not in both.
4. Given the overlap in content and the fact that many
requirements and obligations of most intermediaries are common, SEBI now
proposes to consolidate the common requirements under these regulations and
put in place a comprehensive regulation which will apply to all intermediaries
and prescribe the obligations, procedure, limitations, etc. insofar as the
common requirements are concerned.”
6. Having said that, one must quickly dispel an illusion that
we would now have ‘Master Regulations’ dealing with all aspects of all
intermediaries. It needs to be noted that the intention is to have only ‘common’
provisions relating to intermediaries to be placed in these regulations. Thus,
though a little anomalous, there would exist separate set of regulations for
each category of intermediaries in addition to the common regulations.
7. It would be thus worth reviewing these new regulations
from at least two angles. Firstly, an overview of the scheme of the regulations
is worth since it will refresh our memory of the manner in which intermediaries
have been always regulated in some aspects and in any case would now be
regulated. Secondly, it is worth seeing how the new regulations have common and
uniform provisions applicable to all intermediaries in place of differently
drafted, if not inconsistent, regulations applicable to different
intermediaries.
8. It is important to note here that the new regulations are only partially applicable with immediate effect. As of now, only the provisions relating to enquiry and taking of action for violation contained in these new regulations have been brought into effect. Other provisions, for example, those relating to application and registration common to all intenmediaries, are not yet effective. Thus, the provisions in the existing regulations for each category continue to be in force. The regulations provide that SEBI will notify from time to time the categories of intermediaries to whom these regulations will apply. The intention appears to be that the regulations will be notified for one or more categories at a time, with the corresponding existing regulations relating to those intermediaries being repealed. However, since the provisions relating to enquiry and taking of action for violation have been brought into effect immediately, the corresponding common regulations of 2002 have been repealed. Further, the provisions relating to ‘fit and proper’ requirements for intermediaries have been also brought into effect – though they are a slimmer version of the separate regulations – and such separate regulations have also been repealed.
9. Let us now consider some special features of these regulations.
10. A common application form for registration as an intermediary has been prescribed. Thus, all intermediaries would have to use this form when they seek registration. However, this common form will not be enough as the intermediary would also ha e to provide information that is required by the applicable specific regulations. In other words, for example, if the applicant is a stockbroker, he will have to provide the additional information sought by the ‘Regulations’ applicable to the stockbrokers.
11.1 It may appear that this requirement applies only to new applicants seeking registration for the first time. However, there is a strange requirement which will result in all intermediaries having to register themselves all over again and that too by a specified deadline. It has been provided that every intermediary will have to make a fresh application within 21 months (actually 24 months less 3 months advance period specified) of the commensment of the regulations for that intermediary. If the intermediary does not apply, it will have to stop continuing its activities. If the term for which the intermediary has been granted registration expires earlier than the specified date for making fresh application, the expiry date would be relevant for seeking registration in the ‘common form’. For those intermediaries who have been given ‘permanent’ registrations, the corresponding deadline is 24 months.
11.2 To repeat, as this requirement is not yet made effective, the existing provisions will continue to apply.
12. ‘Fit and Proper’ criteria:
Readers may recollect that the intermediaries have to pass the so-called ‘fit and proper’ criteria for registration. These have been contained in a separate set of regulations. The existing regulations have been repealed and the, simplified requirements have been incorporated in these ‘Common Regulations’.
13. Change of status or constitution:
Change of status or the constitution of the intermediary would require prior approval of SEBI. What is change of status or constitution has been very broadly defined in the ‘Common Regulations’ and hence before carrying out any form of such change, the intermediary needs to carefully study the ‘definition’.
14. Registration to be permanent:
The registration under these new regulations will be permanent subject of course to continuing compliance of the conditions of registration. However, the intermediary will have to provide a certificate from its Compliance Officer annually that these regulations as well as the eligibility criteria continue to be complied with.
Q. : Has any form for compliance certificate been prescribed? If so please mention the fact.
15. Code of Conduct :
A comprehensive Code of Conduct has been provided for in the ‘Common Regulations’ to be complied with by the intermediaries. However, though this Code seems to be elaborate, it appears that the Code of Conduct under the respective Regulations applicable to each category of intermediaries will also apply. Possibly, SEBI may from time to time, remove the common requirements that have been inserted in these regulations. Until this happens, the intermediaries would have to look at and comply with two Codes of Conduct.
16. Enquiry and punishment:
16.1 A separate Chapter has been brought into force with immediate effect, which provides for enquiry with regard to violations and punishment in the form of suspension or cancellation of the certificate of registration, or other action.
16.2 The structure and procedure remains quite similar to the existing procedures. Having said that, if one goes in detail, there are important differences with regard to the type of punishment, with regard to procedural aspects of hearing, etc.
16.3 Appeal to the Securities Appellate Tribunal can be made against orders under this Chapter.
16.4 In a future article, I may analyse the changes in the procedure and punishment.
17. Conclusion:
Clearly, the ‘Common Regulations’ are a step that has been taken towards simplification of the law, though it is equally clear that it is only a partial step. The expectation of having a common and exhaustive set of regulations dealing with all aspects relating all categories of intermediaries has not been realised. In fact, it can be seen that while the volume may decrease, the complexity remains and has even increased, since instead of repealing multiple regulations, yet another set of regulations has been created.
