SEBI revamps settlement rules, brings in formula-based system

The Securities and Exchange Board of India (SEBI) has approved a revised settlement framework, supplanting the 2018 regulations and implementing a formula-based approach. This new system will commence 30 days following the date of notification.

The base amount in the formula is determined by the minimum penalty stipulated by securities laws for the specific violation, with multipliers assigned depending on the type of applicant. The subsequent calculation takes into account various factors such as the stage of proceedings, regulatory action, severity of the default, and any aggravating or mitigating elements.

The settlement amount is computed as follows: Settlement Amount = Base Amount × (S + R + G + A - M) + Legal Costs. It is crucial to note that wrongful gains, losses avoided, or losses imposed on investors are excluded from the base amount and are instead addressed separately.

Under the revised rules, SEBI has the authority to issue a settlement notice prior to a show-cause notice, granting entities a 60-day window to request settlement. This timeframe has been extended to 90 days for applications submitted post a show-cause notice. Additionally, a fast-track process will be introduced for particular cases, including disclosure violations, where the settlement amount does not surpass ₹10 lakh.

The new regulations also offer a one-time 90-day period for entities that either missed the initial deadline or had their applications rejected, withdrawn, or returned under the 2018 rules, provided certain conditions are met. Furthermore, entities can subsequently reapply at the appellate stage if their earlier applications were rejected due to specific grounds no longer being applicable, with an additional 20% of the settlement amount included.