SEBI tightens rules for collective investment schemes

The Securities and Exchange Board of India (SEBI) has approved several amendments to its regulations, including further tightening of regulations regarding collective investment schemes, conducting search and seizure operations, settlement proceedings, etc.

In exercise of its newly-granted powers, the board of the market regulator, which met in Mumbai on Tuesday, approved an amendment to its Collective Investment Schemes (CIS) Regulations in order to align it with the central government ordinance, issued in September this year, which provides for regulation of pooling of funds under any scheme or arrangement involving a corpus amount of Rs100 crore or more, which is deemed as CIS activity.

The amendments to the SEBI (IPEF) Regulations, 2009 enable utilisation of pooled funds under the collective investment schemes primarily for restitution to investors and in case of failure of identification of investors, for the credit of amounts disgorged to the Investor Protection and Education Fund of SEBI.

Besides, the board approved SEBI (Procedure for Search and Seizure) Regulations, 2013, which provides procedures for such search and seizures by the regulator based on the Income Tax Act.

The SEBI board decided to ensure that checks and balances are created to prevent abuse of its new powers, including in terms of ensuring privacy of individuals in search and seizure operations.

The board also approved SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2013, which have been framed, keeping in view the provisions of the Ordinance and public comments received by SEBI.

The amendments include a common substantive procedure for settlement of administrative and civil proceedings under the securities laws while formalising existing settlement processes.

Serious offences like insider trading have been excluded from the scope of any settlement process.

The SEBI board also decided to allow public financial institutions and scheduled banks, issuers authorised by the notification of CBDT to make public issue tax free secured bonds, infrastructure debt funds – non-banking financial companies, NBFCs registered with RBI, housing finance companies registered with National Housing Bank (NHB) and entities which have listed their shares/debentures in the stock exchanges for at least three years to file shelf prospectus for public issuance of non-convertible debt securities.

Other decisions taken at the board meeting include making IPO grading voluntary, creating tax treatment for foreign portfolio investors (FPIs), a newly created class of overseas investors, similar to the regime that exists for FIIs.