New Delhi: As SEBI tightens its noose on those violating securities laws and defrauding investors, Chairman U K Sinha has warned that repeat offenders and those indulging in major offences like insider trading can't seek settlement of their cases by paying some charges.
At the same time, SEBI is open to consider the settlement pleas of those suspected of small offences in the capital markets, provided those violations are not to the detriment of retail investors or the overall marketplace, so that the regulator can sharpen its focus on probing serious cases.
The Chairman of the Securities and Exchange Board of India (SEBI) also said that the regulatory authority has made a very robust settlement mechanism, which is stronger than the prevailing norms in many developed markets including the US, and is now being followed by regulators in some other countries including the UK.
A consent mechanism is in place at SEBI since 2007, which allows an entity being probed for suspected violations to settle the case after payment of settlement fees and other applicable charges, without admitting or denying the guilt.
This framework was tightened further in 2012, while newly enacted Securities Laws Amendments Act has converted it into regulation with necessary legal backing for such settlements. SEBI's orders in these matters can not even be challenged now.
To further streamline these norms, SEBI has put in place a detailed 'mathematical' formula and has adopted a scientific approach to determine the settlement charges required to be paid by concerned entities, as also to decide whether a case is appropriate to be settled or it is liable to be rejected for any possible settlement.
"Earlier, these was a chance that someone would come up with most difficult and bad crimes and still get a consent. At the same time, we have been criticised of being arbitrary in accepting or rejecting a case for settlement. But, now we have put in place new guidelines to take care of these issues," Sinha told PTI in an interview.
"What we have done is that on the pattern of criminal law, certain offences which are minor in nature, only those will be consented. So we have created two categories -- if you committed big offences, you have to suffer. We can't let you go away without even admitting the offence.
"This is in the vast contrast to the practises prevailing in the US and many other developed markets. There, you can do anything and still seek settlement. SEBI has decided that we will not do that. If you have consciously done it, you must suffer," he said.
The SEBI chief further said that "even if somebody is coming for settlement, we have removed the discretion from the officer level for deciding on such pleas".
"We have come out with a very detailed mathematical formula where we have given weightage to certain parameters, for example to whether a person is a first time or repeated offender," Sinha said.
"It takes into account whether the offender has cheated some institutional investor or retail investors are also suffering because of him. At what stage did he come for settlement, and whether the plea has been made voluntarily or after SEBI detecting something significant. Based on these parameters, we have given weightage.
"You will be happy to know that this practice which we have started, other countries have started following it. The latest example is the Financial Conduct Authority (FCA) of UK. They have also recently come out with similar guidelines, on the lines of what we have done," he added.
One of the major cases where SEBI has rejected a consent settlement plea was the one involving corporate giant Reliance Industries, while there have been many other major cases where the regulator has refused to settle its probes.
Sinha further said SEBI has decided to concentrate only on smaller offences for consent-based settlement, as it may not be advisable to go through lengthly legal processes and long adjudication proceedings for minor mistakes.
"The message we want to give is that if you have committed a minor mistake, then come and settle it. If you are ready for settlement, we will also consider that. But, if you have committed a bigger offence, you cannot expect any settlement and you will have to suffer," he said.
When asked how does SEBI define big and small offences, Sinha said that the new settlement regulation answers these matters in full detail.
"To give an illustration, insider trading is a serious offence, violation of open offer in takeover matters is a serious offence, and front-running by a mutual fund manager is a serious offence. These offences cannot be consented.
"If somebody is doing market manipulation and it has affected to retail investors, it is an offence which cannot be consented," he said.
On what can be consented, Sinha said such cases would include non-compliance to certain disclosure requirements such as under the takeover code.
"If you have pledged your shares, or you have acquired one percent extra you have to inform and if you fail to do it, say for 10-20 days, that can be consented.
"So the majors and minors have been well defined. In a nutshell, cases like insider trading, front-running, serious market manipulation are among those that are not consentable," he said.
"All these are defined under the regulation. Even I don't have the powers now to say that something is cosentable or not consentable," Sinha added.
