SEBI to ease settlement, compounding rules to fast-track cases

Markets regulator SEBI on May 19 decided to simplify its settlement and compounding norms to ensure faster closure of cases where accused entities are ready to pay up and make good the losses suffered by investors.

SEBI regulations provide for settlement of the cases where proceedings have been or are yet to be initiated while the cases where prosecution has been initiated are compoundable by the court concerned.

However, the number of settlements has come down sharply in recent past as certain provisions were making it difficult for the applications to be considered for consent settlement, leading to calls for simplification of the norms.

Some of the major cases where settlement pleas have been rejected in the past include those involving corporate giants like Reliance Industries and it is expected that the simplification of norms, approved by SEBI's board today, would help clear those cases as well.

Besides, the compounding procedure was considered to be time-consuming due to various procedural delays under the existing rules and they have also been eased now.

The simplified set of norms would now allow entities under probe for 'serious violations' in capital markets to seek settlement of the case, provided they agree to make good the losses suffered by the investors to SEBI's satisfaction.

This would also apply for defaults with "market-wide impact" or involving significant losses to investors.

After its board meeting, SEBI said Settlement Regulations were formulated primarily to settle minor and technical violations not having wider impact on the market so that enforcement is concentrated on major and significant cases.

"During 2015-16, the number of settlement cases has come down putting pressure on the enforcement system," SEBI said while adding that an analysis showed that there were certain doubts on the interpretation of some provisions.

Consequently, an internal guidance note was issued in March clarifying the doubts so that more serious and substantial cases are only taken up for enforcement action.

Now, the board has approved incorporation of this guidance note in the Settlement Regulations, which clarify that defaults having a bearing on the securities market as a whole and not just the listed security and its investors may be considered to have a market-wide impact.

"The assessment of facts and circumstances while deciding the seriousness of the default in relation to an applicant shall take into account the weight and the sufficiency of the evidence," SEBI said.

In the consent settlement process, the entity facing a probe by SEBI is subjected to certain fees and restrictions without admission or denial of alleged irregularities, and the regulator thereafter drops its charges and the investigations with a caveat that all disclosures made to it are correct. The case can still be re-opened if some new facts come up later.

The changes would provide greater clarity on the cases that can be settled and also help expedite the compoundable matters as suggested by the special SEBI court.