RBI’S REVISED REGULATORY FRAMEWORK FOR NBFCS

Introduction

In the backdrop of recent stress in the financial sector, especially in the speciality finance (i.e. NBFC) space, the Reserve Bank of India (“RBI”) has sought to address potential systemic risks by issuing a discussion paper on ‘Revised Regulatory Framework for NBFCs – A Scale-Based Approach’ (“Discussion Paper”) on January 22, 2021. The apex bank, through the Discussion Paper, has introduced a scale-based approach to the regulation of non-banking financial companies. Owing to their growing significance, linkages with the banking and capital markets sectors, and complexity in operations, the Discussion Paper proposes a four-tiered regulatory structure for NBFCs, based on proportionality of the NBFCs.
Continue Reading FIG Papers (No. 2) : RBI’s Revised Regulatory Framework for NBFCs : Industry Implications

RBI Working Group on Digital Lending – Policy Suggestions

The Reserve Bank of India (“RBI”), through a press release issued on January 13, 2021, has set up a working group on digital lending (“WG”), to study all aspects of digital lending activities in the regulated financial sector as well as by unregulated players so that an appropriate regulatory approach can be put in place.

The move is well-timed, given the recent turmoil witnessed in the Indian digital lending space, and comes on the back of the RBI’s December 23, 2020, public caution against unauthorised digital lending platforms/ mobile Apps and its June 24, 2020, Circular, prescribing Fair Practices Code for banks and non-banking finance companies (“NBFCs”) while sourcing loans or recovering dues through digital lending platforms.
Continue Reading FIG Papers (No. 1) : RBI Working Group on Digital Lending – Policy Suggestions

WHAT IS FRONT RUNNING – A Q&A PIECE IN LIGHT OF THE SEBI ORDER AGAINST DEALERS OF RELIANCE SECURITIES LTD

Introduction

In an interim ex-parte order last month against the dealers of Reliance Securities Limited (“RSL”) and other related entities (“RSL Order”)[1], SEBI prima facie held over two dozen entities to have engaged in front running the trades of Tata Absolute Return Fund, a scheme of Tata AIF (“Big Client”).

During its preliminary examination, SEBI meticulously pieced together several bits of available circumstantial evidence and alleged an archetypal scheme of front running purportedly employed by three senior dealers (“Dealers”) at RSL, in nexus with various related entities. The RSL Order alleges that once the Dealers at RSL were privy to the non-public information of the impending orders of Big Client, they along with their connected broker or dealer entity would, through multiple trading accounts directly or indirectly controlled by them, place trades either in the Buy-Buy-Sell pattern or Sell-Sell-Buy pattern, around the time of the orders of the Big Client to generate substantial proceeds.
Continue Reading What is Front Running? – A Q&A Piece in Light of the SEBI Order Against Dealers of Reliance Securities Ltd.

Revised Framework for Core Investment Companies – Tightening the Screws

Introduction

The Reserve Bank of India (“RBI”) has modified the regulatory landscape applicable to core investment companies (“CICs”), as per its circular dated August 13, 2020 (“Revised Framework”), in order to ensure stability of the financial system and address systemic risks posed by inter-connectedness of CICs and their group companies. In contrast to the light-touch regulation issued exactly a decade ago on August 12, 2010, the Revised Framework imposes far more stricter norms.

In furtherance to its announcement in the Statement on Development and Regulatory Policies issued on June 6, 2019, along with the Second Bi-Monthly Monetary Policy for the year 2019-20, the RBI constituted a working group under the chairmanship of Mr. Tapan Ray (non-executive chairman, Central Bank of India and former secretary, Ministry of Corporate Affairs) (“Working Group”) to review the regulatory and supervisory framework applicable to CICs. The Working Group issued its report in November 2019 and the Revised Framework has now been issued based on the recommendations of the Working Group.
Continue Reading Revised Framework for Core Investment Companies – Tightening the Screws?

Recent amendments to the insider trading regime

Since overhauling the insider trading regime with the introduction of the SEBI (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations”), the Securities and Exchange Board of India (“SEBI”) has continually sought to fine tune and tweak the regulations through amendments in 2018 and 2019. On July 17, 2020, SEBI notified the Securities and Exchange Board of India (Prohibition of Insider Trading) (Amendment) Regulations, 2020 (“PIT Amendment”), to introduce further changes to the PIT Regulations.
Continue Reading Recent Amendments to the Insider Trading Regime

Mutual Funds and Alternative Investments - Stewardship Code

Introduction

On December 24, 2019, Securities and Exchange Board of India (“SEBI”) released a circular setting up a stewardship code for Asset Management Companies (“AMCs”), Mutual Funds (“MFs”) and all the categories of Alternative Investment Funds (“AIFs”) investing in listed Indian companies (“Stewardship Code” or “Code”). In keeping with global trends, SEBI has made it necessary for the power wielding cash-rich institutional investors, to act in accordance with the responsibilities that invariably accompany and behoove such powers and formulate a policy adopting the principles enshrined in the Code.

The Stewardship Code prescribes certain principles which, aim at enhancing the responsibilities of the AMCs/ AIFs to protect the interests of their investors/beneficiaries. The requirements pertaining to the Stewardship Code shall come into effect on April 1, 2020.
Continue Reading Being Responsible Corporate Citizens – How Mutual Funds and Alternative Investment Funds will Rise Up to the Stewardship code

Revised norms for foreign portfolio investors SEBI

The norms surrounding foreign portfolio investors have undergone continuous changes and tweaks since liberalisation. The framework introduced by Central Government was first consolidated and expanded upon by the Securities and Exchange Board of India (SEBI) under the SEBI (Foreign Institutional Investors) Regulations, 1995 (1995 Regulations).

A little under a decade later, in 2014, SEBI took steps to consolidate the categories of investors previously accessing Indian capital markets – i.e., foreign institutional investors, sub-accounts and qualified foreign investors – into a single class known as ‘foreign portfolio investors’ (FPIs). SEBI also delegated the responsibility of registering such FPIs to designated depository participants (DDPs). Multiple questions arising out of the new regime were subsequently answered by SEBI in a series of frequently asked questions (FAQs), updated from time to time. The 2014 Regulations also incorporated concepts such as opaque structures and a scope of investor group, which did not find a mention in the 1995 Regulations but were introduced through notifications and instructions from SEBI.

Five years later, SEBI has issued revised norms for FPIs in terms of the SEBI (Foreign Portfolio Investors) Regulations, 2019 (2019 Regulations) with a number of changes (as suggested by the committee headed by Mr. HR Khan), some to concepts dating back to the regime under the 1995 Regulations. The 2019 Regulations also consolidate the extensive guidance and requirements prescribed by SEBI by way of amendments to the 2014 Regulations as well as circulars and FAQs issued thereunder.

This post discusses some of the key aspects of the 2019 Regulations.
Continue Reading Revised Norms for FPIs: New Wine in a New Bottle

Insider Trading Hotline SEBI - Informant Mechanism

In our previous blog post, dated June 12, 2019, we discussed the Securities Exchange Board of India’s (SEBI) efforts to institutionalise an informant mechanism for insider trading, through its discussion paper released in June 2019 (Discussion Paper).

The regulator has now formalised this into law through a recent amendment to the Insider Trading Regulations, which came after a SEBI board meeting approved the informant mechanism scheme on August 21 of last month. Interestingly, while the publicly available agenda of the SEBI board meeting states that it had received comments from certain entities on the Discussion Paper, these comments are not publicly available and are stated to have been excised for reasons of confidentiality.
Continue Reading SEBI launches a new hotline: Introduction of the Informant Mechanism into the Insider Trading Regulations

 Securities Law Enforcement - Calibrating the Discipline of Penalty Imposition

Equipped with broad statutory powers, the Securities Exchange Board of India (SEBI) has been hard at work for the past 30 years, shouldering the herculean task of managing the Indian securities market, through both regulation and enforcement. Naturally, to help SEBI respond to and deal with evolving challenges, its powers, specifically those under the Securities Contracts (Regulation) Act, 1956 (SCRA) and the SEBI Act, 1992 (SEBI Act), have been continuously at play, allowing it to mete out a wide range of penalties, both monetary and substantive. SEBI’s exercise of such powers, in its capacity as a quasi-judicial authority, has increasingly become a subject-matter of appellate interest, on questions of both jurisdictional remit and proportionality of penal action.
Continue Reading Securities Law Enforcement: Calibrating the Discipline of Penalty Imposition

SEBI’s Latest Discussion Paper on Insider Trading Regulations

Prosecuting insider trading cases has always been a challenge for the Securities Exchange Board of India (SEBI). Primary evidence is difficult to come by, which impacts success rates as well as investigation timelines.

On June 10, 2019, SEBI released a discussion paper (Discussion Paper) proposing amendments to the SEBI (Prohibition of Insider Trading) Regulations, 2015 (Insider Trading Regulations) to establish systems and processes (both within listed companies, as well as, at SEBI) that incentivise individuals to report insider trading violations, if they come to their knowledge. In terms of the Discussion Paper, the informant may be rewarded up to INR 1 crore (approx. USD 150,000) if SEBI undertakes disgorgement of at least INR 5 crores (approx. USD 0.72 million) as a result of any action taken on the basis of true, credible and original information.
Continue Reading Bounty Hunting in Corporate India – Understanding SEBI’s Latest Discussion Paper on the Insider Trading Regulations