SEBI Penalty Rationalisation Framework Nears Finalisation

The Securities and Exchange Board of India (SEBI) is in the final stages of rationalising penalties imposed on stock brokers, aiming to bring greater fairness, proportionality, and operational clarity to its enforcement practices. A sub-committee constituted for this review submitted its recommendations to SEBI last week, and SEBI Chairman Tuhin Kanta Pandey recently held discussions with broker representatives.

Key Recommendations by the Committee

Severity-Based Enforcement

• Warnings instead of penalties for minor or non-serious violations.
• Intentional violations to attract stricter enforcement actions, ensuring regulatory deterrence.
• Technical or operational lapses to be clearly separated from willful non-compliance.

Single Point of Penalty Enforcement

• Only the exchange where the stockbroker is a trading member may levy penalties.
• Prevents duplication of penalties across multiple exchanges for the same non-compliance.

Change in Terminology

• Replace the term “penalty” in certain cases where the violation is procedural or operational in nature.
• This is to avoid client panic or reputational damage in cases of minor compliance issues.

Additional Steps in Progress

• Common Compliance Portal:
  • Discussions are ongoing to create a centralised reporting system to reduce duplication and ease broker compliance, especially where multiple exchanges are involved.
• Dedicated Approval Portal:
  • A platform is being developed for approvals related to brokers (e.g., advertisements, registrations) to improve processing efficiency.

BS