The Securities and Exchange Board of India (Sebi) is proposing to overhaul its settlement framework, aiming to reduce settlement amounts and speed up enforcement by simplifying how payments are calculated and allowing cases to be resolved earlier.
The move follows Sebi’s finding that, in cases where settlement applications were rejected or withdrawn and the matter later resulted in a penalty, the settlement amount averaged about eight times the final penalty. Under the proposed framework, the regulator expects that gap to narrow to about four times.
In a consultation paper issued Friday, Sebi proposed replacing the existing method with a formula based on a base amount, adjusted for factors including the stage of proceedings, regulatory history, aggravating circumstances and mitigating factors.
Mint reported in November that Sebi was holding meetings with market participants to revamp the settlement framework and address concerns over inflated penalties.
Factors
The proposed framework would also expand the range of mitigating factors that can be considered, potentially lowering the amount payable in deserving cases. It would prevent wrongful gains from being effectively counted twice: such gains would continue to be disgorged but would be excluded from the base-amount calculation.
Sebi also proposed making it easier for applicants to return to the settlement process. An applicant whose earlier settlement application was rejected could, in certain circumstances, apply again at a later stage if the reason for rejection no longer exists. Such an application, if filed after Sebi issues a show-cause notice, would attract an additional 20% settlement amount.
The regulator is also proposing a fast-track mechanism. Cases with a settlement amount of up to ₹10 lakh would not be referred to the High Powered Advisory Committee, removing a layer of deliberation between the Internal Committee and whole time members (WTMs). Sebi also proposed issuing settlement notices before initiating certain formal proceedings, giving parties an opportunity to settle earlier.
The framework would provide greater procedural flexibility as well. The deadline for filing a settlement application after a show-cause notice would be extended from 60 to 90 days. In certain cases, Sebi could allow an extension where the delay was beyond the applicant’s control.
The proposals are open for public comments until 4 September.
