Background
The Securities and Exchange Board of India (SEBI) recently issued an advisory directed at registered intermediaries and regulated entities (Advisory). This Advisory aims to clarify the protocols for communication with SEBI officials, particularly concerning the interpretation of operational measures and policy issues related to the securities markets.
Nature of Communications
SEBI frequently receives various forms of communication from registered intermediaries and regulated entities. These communications often seek clarifications on specific operational measures or policy interpretations. However, SEBI has emphasized that any such communication with SEBI officials, whether it be summaries of discussions, meeting minutes, or personal interpretations should not be construed as official approvals or clarifications unless explicitly stated by SEBI itself. This distinction is crucial to prevent misunderstandings regarding the regulatory framework.
Explicit Written Communication Required
In light of the above, SEBI, through its Advisory, recommends that all registered intermediaries and regulated entities ensure that any actions requiring approval or clarification are undertaken only after receiving explicit written communication from SEBI. This requirement underscores the importance of documented guidance in maintaining regulatory compliance and avoiding potential pitfalls in operational practices.
Utilizing the SEBI Informal Guidance Scheme
For those seeking interpretive guidance or no-action letters, SEBI recommends utilizing the Securities and Exchange Board of India (Informal Guidance) Scheme, 2003 (Informal Guidance Scheme). The Informal Guidance Scheme provides a mechanism for registered intermediaries, listed companies, and mutual funds to seek informal guidance on regulatory matters. Eligible entities can request two types of letters under the Informal Guidance Scheme: no-action letters, which indicate whether SEBI would recommend any action for a proposed transaction, and interpretive letters, which clarify specific legal provisions in the context of a proposed transaction. To initiate a request, entities must submit a detailed letter and a fee of ₹25,000, outlining all relevant facts and applicable legal provisions. SEBI aims to respond within 60 days but may conduct hearings if necessary.
MHCO COMMENT
The Advisory issued by SEBI reinforces the necessity for clear and documented communication between market participants and regulatory authorities. By adhering to this advisory and utilizing the Informal Guidance Scheme, when necessary, registered intermediaries and regulated entities can navigate the regulatory landscape more effectively while ensuring compliance with SEBI's requirements. However, it is important to note that the letters issued through SEBI's Informal Guidance Scheme are not legally binding and SEBI can also take a contrary view in future. Therefore, entities following the guidance provided by SEBI may still find themselves in hot waters with SEBI, which in our view defeats the purpose of providing paid guidance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
