[Analysis] SEBI’s Summary Proceedings—Expediting Securities Law Enforcement

SEBI Summary Proceedings refer to a streamlined legal process used by SEBI to handle cases where there is clear evidence of a violation of the SEBI Act, rules, and regulations. This process is designed to expedite the resolution of cases without a detailed inquiry, typically when the facts are straightforward and not in dispute. SEBI uses summary proceedings as an effective tool to enforce compliance and deter violations in a timely manner, ensuring the smooth functioning of the securities market.

Table of Contents

1. Introduction
2. Understanding Summary Proceedings
3. Scope of Summary Proceedings for Intermediary Violations
4. Proposed Legal Framework for ‘Summary Procedures’
5. Impact of Proposed Summary Proceedings
6. Conclusion

1. Introduction

On July 16^th, 2024, the Securities Exchange Board of India (SEBI) introduced a Consultation Paper detailing a significant amendment to the SEBI (Intermediaries) Regulations, 2008. This proposed amendment is set to introduce ‘Summary Proceedings’, a faster and more efficient way to handle cases involving securities law violations by intermediaries.

The proposed amendment aims to handle cases of certain securities law violations by Intermediaries faster and more efficiently, thereby enhancing the Board’s ability to act swiftly in protecting the interests of investors and maintaining the integrity, transparency, and efficiency of the securities market. Let’s examine this and its potential impact on the securities market.

2. Understanding Summary Proceedings

The essence of the proposed summary proceedings lies in their speed and efficiency. Traditional legal proceedings can be lengthy, often delaying justice and the enforcement of regulations. Summary proceedings aim to cut through this delay, allowing SEBI to address and resolve violations swiftly. This ensures that investor interests are protected promptly, maintaining the securities market’s integrity, transparency, and efficiency.

Earlier, Summary proceedings were part of Chapter III of the SEBI (Procedure of Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002. These regulations were repealed after the introduction of the Intermediaries Regulations in May 2008. Some violations are clear-cut, accepted by the intermediary, or require minimal evidence.

One such violation is intermediaries failing to pay fees to maintain their registration. With permanent registration, intermediaries must pay fees at certain pre-determined intervals. However, many instances of non-payment of fees lead to expired registrations. Since only valid registrations should exist, expired ones need cancellation. The cancellation process under Chapter V of the Intermediaries Regulations is lengthy despite the clear and undisputed violation.

Similarly, some intermediaries repeatedly fail to submit periodic reports on time. Under the SEBI (Investment Advisers) (Amendment) Regulations, 2020, registered Investment Advisors must join the Investment Adviser Administration and Supervision Body (IAASB) to maintain their registration. Several hundred entities missed this requirement, invalidating their registration with SEBI. Cancelling these registrations requires separate proceedings for each intermediary, involving multiple authorities and considerable resources despite the clear and undeniable violations.

The abovementioned instances have prompted SEBI to introduce summary proceedings to ensure swift and efficient handling of such clear-cut cases.

2.1 ‘Summary Proceedings’ to Expedite Handling of Clear-Cut Violations

Violations like fee non-payment and missed report submissions are clear-cut, as mentioned above, often admitted by intermediaries or require minimal evidence. Handling these under Chapter V of the Intermediaries Regulations is time-consuming and inefficient. An efficient approach is crucial for maintaining market integrity, transparency, and efficiency. Summary proceedings will ensure uniform treatment and expedite the handling of such violations, enhancing regulatory efficiency.

To address specific violations by intermediaries, summary proceedings are proposed. These will allow entities to submit reasons why the facts should not result in adverse consequences. The proposed amendments to the Intermediaries Regulations aim to streamline the regulatory process, enabling swift action to protect investors and maintain market integrity.

3. Scope of Summary Proceedings for Intermediary Violations

The proposed summary proceedings will include criteria for case selection and procedural details. The summary proceedings will apply to cases involving intermediaries under specific conditions, including:

• Expulsion as a member by stock exchange(s) or clearing corporation(s),
• Termination of depository agreements,
• Claims of returns or performance which the Board does not permit
• Claims of returns or performance which are found to be false or misleading by the Board or an agency as may be specified by the SEBI,
• Non-payment of specified fees, such as payment of fees for keeping the registration in force,
• Intermediary not being traceable,
• Failure to submit periodic reports for three or such consecutive periods as may be specified by the SEBI,
• Cases where the intermediary has admitted the violation.

4. Proposed Legal Framework for ‘Summary Procedures’

The proposed provisions shall outline the process for issuing notices, submissions and submission timelines, decision-making criteria, 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. In terms of these provisions:

• An Intermediary shall be provided 21 days from the date of receipt to provide its submission through a written response.
• The competent authority shall aim to pass the order within 21 days from the intermediary’s response or written response submission deadline. Further, while passing the order, the competent authority may require the intermediary to satisfy certain conditions.
• The competent authority may cancel or suspend registration or issue appropriate orders.
• A copy of the order shall be sent to the intermediary and uploaded on SEBI’s website. It shall also be sent to the stock exchange(s), the clearing corporation(s), the depository(ies), or the body recognised by SEBI for administration and supervision of the intermediary, and they shall upload a copy of the order on their websites.

5. Impact of Proposed Summary Proceedings

The introduction of summary proceedings within the SEBI (Intermediaries) Regulations, 2008, is anticipated to impact the regulatory landscape, offering several key benefits significantly:

• Enhanced Regulatory Efficiency: The proposed amendments aim to streamline handling certain clear-cut violations, allowing SEBI to address these issues more swiftly.
• Timely Resolution of Cases: By implementing a summary procedure, SEBI can expedite the resolution of cases involving obvious or uncontested violations.
• Uniform Treatment of Violations: The introduction of summary proceedings will ensure a uniform approach to handling specific violations.
• Resource Optimisation: The current process under Chapter V of the Intermediaries Regulations is resource-intensive, requiring separate proceedings for each intermediary. The proposed summary proceedings will optimise SEBI’s resources by consolidating and expediting the enforcement process, allowing the Board to focus on more complex cases that require detailed investigation.

6. Conclusion

The introduction of summary proceedings within the SEBI (Intermediaries) Regulations, 2008, represents a significant step towards enhancing regulatory efficiency, ensuring timely resolution of clear-cut cases, and promoting uniform treatment of violations. By streamlining the enforcement process, SEBI aims to protect investors more effectively, maintain market integrity, and optimise its resources to address more complex cases, ultimately fostering a more transparent and efficient securities market.