Market regulator SEBI (Securities and Exchange Board of India) said, it will not settle serious offences, including insider trading and front-running, by the consent process.
“The defaults falling in the category of fraudulent and unfair trade practices, which in the opinion of SEBI are very serious and have caused substantial losses to the investors, shall also not be consented,” the market regulator said.
On 25th May, SEBI released a circular which amended the Consent Circular of 2007. SEBI has listed offences, including insider trading, failure to make an open offer, front-running, manipulation of NAV (net asset value), failure to redress investor grievances and non-compliance of summons, that will be excluded from the consent process.
The regulator said that defaults relating to manipulation of NAV or other mutual fund defaults, where the actions of the asset management company result in substantial losses of unitholders, and failure to make disclosures, redress investor grievances and respond to summons issued by SEBI will not be consented.
Under the new framework, SEBI shall only accept a consent application for up to 60 days of the servicing of a showcause notice. After an applicant files for the consent process, the application will be taken up by an internal committee, which would have a SEBI general manager. After that, the consent terms will be placed before the High Powered Advisory Committee (HPAC), which will consist of a retired high court judge and three other external experts.
The recommendations made by the HPAC will then be placed before a panel of two whole-time members for their approval. The whole-time members may enhance or reduce the settlement amount or may even reject the consent process.
SEBI further said that consent orders will not be entertained if any violation is committed in two years from the date of any consent order except if the default is minor. Applicants who have already obtained more than two consent orders will not be allowed to settle any violations through consent order for three years from the date of the last order. The market regulator will also not entertain any consent orders till the completion of investigation.
SEBI has said the consent terms may also include other directives, including the disgorgement of ill-gotten profits. The new guidelines will come into force with immediate effect.