SEBI relaxes regulatory norms, enhancing oversight and accountability

SEBI relaxes regulatory norms, enhancing oversight and accountability

In its 23 March Board meeting, the Securities and Exchange Board of India (SEBI) has agreed to a number of regulatory changes. These will strengthen oversight and transparency and make business easier for market participants.

A major inclusion was a stronger conflict-of-interest framework for market regulators’ members and officials, based on recommendations from a high-level committee.

However, the updated version requires strict disclosure requirements, tighter trading rules, and clear recusal guidelines. It includes a digital platform to monitor conflicts and the creation of an Office of Ethics and Compliance.

Importantly, the Chairman and Whole-Time Members will now follow investment and disclosure norms similar to those applicable to SEBI employees.

Regarding foreign investors, the Board has consented to allow Foreign Portfolio Investors (FPIs) to use a net settlement system in the cash market. This will replace the current gross settlement method and reduce the need to block large amounts of funds.

The initiative will lower costs and improve efficiency, especially during index rebalancing when trading volumes are high.

SEBI has also proposed measures to make operations smoother for Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs)

These include allowing InvITs to hold assets even after project completion under certain conditions, expanding investment options into safer mutual funds (MFs), permitting limited exposure to new projects for privately listed InvITs, and offering more flexibility in borrowing for highly leveraged structures.

Additionally, the regulator has updated the fit and proper person rules for intermediaries.

SEBI explained that simply filing an FIR or a chargesheet will not automatically lead to disqualification. Instead, each case will be assessed on a merit.

Similarly, stricter provisions have been added, including disqualifying individuals convicted of economic offences, while ensuring a fair process for hearing.

The Board added that to encourage wider participation in social investing, it has reduced the minimum investment amount from Rs.2 lakh to Rs.1,000. This is likely to attract more retail investors and support the growth of the Social Stock Exchange (SSE).

Moreover, for Alternative Investment Funds (AIFs), it has introduced greater flexibility. Funds will be allowed to hold liquidation proceeds beyond their tenure in specific cases (pending legal or tax matters).

Also, for funds that are no longer actively investing, a new category, ‘inoperative funds’, has been created with simple compliance norms.