Shruti RajanPartner
Khyati GoelAssociate
Harishankar RaghunathAssociate
Key Developments
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Issuance of Master Circular for the redressal of investor grievances through the SCORES platform
For over a decade, the Securities and Exchange Board of India’s (SEBI) centralised investor redressal platform, SCORES, served as the nodal point for aggrieved investors who wanted to register their grievances against SEBI-regulated intermediaries/entities. On 7 November 2022, SEBI issued a Master Circular consolidating the regulatory framework around the filing of investor grievances and introducing a host of changes.
Notably, it is now mandatory for investors to first take up their complaint with the entity concerned – it is only upon their failure to satisfactorily resolve the complaint within 30 days that SCORES will entertain the grievance. This move arises from an industry representation, which argued that many grievances could be resolved much faster if taken up with the entity directly rather than channelling them through SEBI.
In the interest of investor satisfaction, a complainant can now also request a review of the redressal measures undertaken by the entity. The complaint is then escalated to the supervising official of the dealing officer of SEBI. Through this measure, SEBI hopes to strengthen investor confidence and enable comprehensive redressal of investor grievances.
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Strengthening the governance mechanisms in Market Infrastructure Institutions
Recognising the crucial role played by Market Infrastructure Institutions (MIIs) such as stock exchanges and clearing corporations, SEBI had constituted the Committee on Strengthening Governance of MIIs (Committee) in April 2022 to conduct a comprehensive review of the governance mechanism at MIIs.
Pursuant to its review, the Committee submitted its report in November 2022, suggesting a wide-ranging set of changes to the regulatory framework. Overarchingly, they are aimed at improving accountability and transparency and ensuring the presence of robust governance mechanisms. The Committee has recommended strengthening of the role played by the governing board and committees of MIIs, reviewing the appointment requirements and roles and responsibilities of the directors of the board and the key managerial persons, and reviewing the policy on information sharing, among other recommendations.
In its board meeting dated 20 December 2022, SEBI largely concurred with the observations and recommendations of the Committee and approved the suggested measures. The changes outlined will come into effect after 180 days from their notification in the Official Gazette.
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Introduction of Central Bank Digital Currency
Central banks across jurisdictions have been deliberating the notion of a Central Bank Digital Currency (CBDC), which is generally understood as a distributed ledger-based unit backed by the central bank and recognised in law as sovereign currency. CBDCs have been mooted by some authorities as a viable alternative to private cryptocurrencies, which have typically been associated with various risks. While pilots for CBDCs have been rolled out in several jurisdictions, CBDCs have not yet been used in a widespread manner in any major jurisdiction.
The central government and the RBI announced their intention to explore a CBDC in 2018. To facilitate a CBDC, the Reserve Bank of India Act, 1934, was amended by the Finance Act, 2022, to include digital bank notes as legal tender. In October 2022, the RBI released a concept note on CBDCs, exploring their pros and cons, as well as the potential modalities of operation.
On 1 November 2022, the RBI commenced a pilot launch of central bank digital currency, e₹-W. The use case of e₹-W was specifically limited to the wholesale segment, with particular reference to the settlement of secondary market transactions in government securities. The RBI expressed hope that the introduction of e₹-W would make the inter-bank market more efficient by doing away with the requirement for settlement guarantee infrastructure.
Following this pilot, e₹-R - a pilot of the digital currency in the retail space, was launched on 1 December 2022. RBI proposed allowing a closed user group of participating customers and merchants to transact in e₹-R through digital wallets offered by the participating banks, with both peer-to-peer and peer-to-merchant transactions being possible. Eight banks were identified for phase-wise participation in the pilot. e₹-R replicates many of the characteristics of cash – trust, safety, settlement finality, and fungibility. RBI has announced its intention to closely monitor the pilot program to test the robustness of the digital rupee. While RBI has not clarified the use-cases which this digital rupee could eventually be employed for, leaving some questions open in its Concept Note, it is evident that the central bank is taking proactive steps towards testing the utility of this new technology.
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Other notable developments
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Regulatory consolidation and reforms
To encourage foreign investment, SEBI amended the SEBI (Alternative Investment Funds) Regulations, 2012 on 15 November 2022 to bring certain operational facets of such funds in line with global standards. Taking note of the increased reliance of modern-day trading processes on technology, the regulator recently mandated exchanges to jointly develop an Investor Risk Reduction Access platform to serve as a contingency service for market players in case of technical disruptions. The SEBI board meeting of 20 December 2022 also saw the regulator approve: (i) the requirement for certain platforms to register as an execution-only platforms, (ii) the gradual phasing out of the method of effecting a buy-back through the exchanges, and (iii) the participation of Alternate Investment Funds in credit default swaps.
Further, on 19 December 2022, SEBI issued a master circular, superseding the 2019 Operational Guidelines for Foreign Portfolio Investors, Designated Depository Participants, and Eligible Foreign Investors (and its attendant circulars), and introducing a host of changes. The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 have also been amended to allow for confidential filing of draft offer documents with SEBI.
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Unified Payments Interface and financial innovation
RBI tweaked the regulatory regime to expand the utility of the Unified Payments Interface (UPI). Customers engaging in simultaneous debit activities such as investing in securities, online shopping and payment of bills, among others, may now block a certain amount of money using UPI.
The Reserve Bank Innovation Hub, established by the RBI for idea generation and financial innovation, is currently undertaking several important projects such as improvements in the Know Your Customer process, end-to-end digitisation measures, and interoperability of payment systems, among other developments in the financial market sphere.
- On the judicial front, the Securities Appellate Tribunal (SAT) pronounced an important decision in the case of V. Shankar v Securities and Exchange Board of India, which absolved the company secretary of Deccan Chronicle Holdings Limited (DCHL) from responsibility for some misstatements and inaccurate disclosures made by the company in the balance sheet and offer document. SAT underscored the responsibility of the board of directors of DHCL to ensure the veracity of the contents of the balance sheet/offer document and examined the limited role played by the company secretary.
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The new year has started off on a busy note. RBI has tweaked the modalities of reporting of foreign investment through a circular dated 4 January 2023 issued to Category-I Authorised Dealer Banks rationalising the reporting process on the FIRMS portal. SEBI has issued a comprehensive operational circular for credit rating agencies, which sets out the contours of the framework these tightly regulated entities are expected to abide by. SEBI is also expected to issue guidelines regulating the ‘finfluencer’ economy, amidst rising concerns that social media influencers are peddling financial advice without the appropriate regulatory checks and balances. We expect the financial regulators to act in lockstep over the course of the present quarter, with their actions geared towards boosting investor confidence and safety.
