SEBI proposes segregated structure for RTAs; suggests MCA to oversee services for unlisted firms

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The Securities and Exchange Board of India (SEBI) has proposed activity-based regulations for Registrar and Transfer Agents (RTAs) while suggesting a segregated Separate Business Unit (SBU) concept for offering services to unlisted companies, which do not fall under the purview of the capital markets watchdog.

In a consultation paper issued on Thursday, SEBI highlighted the fact that RTAs provide services to around 35,000 unlisted companies as against only around 4,000 listed firms and suggested an activity-based regulations so that all activities for listed firms are under SEBI's purview while the Ministry of Corporate Affairs can oversee the services being offered to unlisted companies.

"... given now the influx of the unlisted companies, with the increased focus on dematerialisation across the spectrum, it is critical that the activities of the RTA that cater to its various services are demarcated across regulators and their respective obligations," stated the SEBI paper.

"In order to demarcate regulatory obligations, it is proposed to introduce activity based regulations for RTAs, wherein only the services provided by RTAs to listed companies will fall under SEBI’s regulatory purview and those that pertain to unlisted companies shall be governed by the Ministry of Corporate Affairs (MCA). This will ensure that the investors in the unlisted market shall also continue to have a regulatory protection," it added.

The capital marker regulator has proposed that while registrations shall continue to be granted by SEBI, services provided by RTAs to unlisted companies will be overseen by the MCA.

"MCA will continue to handle the complaints related to the investors pertaining to the unlisted securities. SEBI will continue to handle any grievances/complaints (including investor complaints) related to services to listed companies," stated the SEBI paper.

Further, SEBI has suggested setting up an SBU -- governed by MCA -- for services to be offered to unlisted companies.

"RTAs who wish to provide services to both listed and unlisted companies and continue to be registered with SEBI, may provide services to unlisted companies through a Separate Business Unit (SBU). The SBUs set up for the purpose shall be governed by the MCA," it said while adding that RTAs will have to ensure that the services provided to listed and unlisted entities are segregated and ring-fenced from each other and an arms-length relationship is maintained between these activities.