SEBI Proposes Settlement Overhaul: Fast-Track for Cases Under ₹10 Lakh

The Securities and Exchange Board of India (SEBI) has unveiled a comprehensive plan to revamp its settlement framework, aiming to simplify and accelerate enforcement proceedings across the financial markets. A key component of this proposal is the elimination of an additional 20% settlement charge previously applied in certain cases involving multiple proceedings.

Furthermore, SEBI intends to establish a fast-track settlement mechanism for cases where the settlement amount does not exceed ₹10 lakh. This streamlined process would allow such cases to move directly from the Internal Committee to a panel of Whole Time Members, bypassing the High Powered Advisory Committee (HPAC).

Streamlining Enforcement and Charges

This new fast-track route also incorporates the existing summary settlement process for specified violations, consolidating mechanisms for smaller infractions. The regulator seeks to make the overall enforcement process more predictable for market participants.

Revised Settlement Calculations

Under the proposed changes, settlement amounts will now be directly linked to the minimum penalty outlined in securities laws, utilizing varying multipliers based on the applicant’s specific category. Crucially, any wrongful gains or investor losses will not be factored into the base settlement amount, but these will continue to be recovered independently through disgorgement actions.

Clarifying Defaults and Mitigating Factors

SEBI also aims to provide clearer guidelines for calculating the number of defaults in enforcement actions. The proposal suggests that multiple failures in event-based disclosures stemming from a single underlying event should be treated as a single default count.

• The maximum number of mitigating factors that can be considered by SEBI will increase from three to five.
• New additions to these factors include a change in control or management of a corporate entity.
• Another new mitigating factor is the applicant being an independent director.

Interest on Disgorgement: New Rules

Regarding the interest payable on disgorgement amounts, SEBI has put forward specific rates depending on the status of a final order. These new interest stipulations aim to provide clarity for entities involved in settlement proceedings.

• If no final order has been issued, a 9% per annum charge applies from the transaction date until the settlement application filing date.
• If a final order exists, the interest would be 9% per annum from the transaction date until the final order date, and then 12% thereafter until the settlement application is filed.
• No interest will be charged on the interest amount itself, and a weighted average approach for interest calculation is suggested for complex cases with numerous transactions.

Finally, the regulator plans to extend the timeframe for filing settlement applications in pending proceedings, acknowledging the current 60-day period may be insufficient for entities with international operations. Public comments on these significant proposals are invited until September 4.