Consultation paper issued by the Securities and Exchange Board of India (SEBI) regarding the maintenance of records for mandatory communications by regulated entities. - MMJC

The Securities and Exchange Board of India (SEBI), through a consultation paper dated August 29, 2024, seeks public feedback on the necessity of maintaining records of mandatory communications by entities regulated by SEBI.

Currently, SEBI-regulated entities are required to communicate various types of information to stakeholders. However, only a limited category of these communications must be preserved. The existing regulatory framework does not mandate the preservation of records for all mandatory communications.

The consultation paper emphasizes the importance of preserving such records for several reasons:

• It aids in resolving investor grievances.
• It ensures compliance with securities laws.
• It provides evidence in instances of breaches of securities laws.
• It enhances transparency and boosts investor confidence.

SEBI proposes the following measures:

• Mandate: Regulated entities must maintain records of all mandatory communications, including acknowledgments, for a minimum period of eight years.
• Regulatory Amendments: These proposed changes would be incorporated into various SEBI regulations, requiring all regulated entities such as stock brokers, mutual funds, and investment advisers-to preserve these records.
• The consultation paper also contains details in Annexure A, which provides the draft text of the proposed amendments to various SEBI regulations. It specifies that each type of regulated entity (e.g., stock brokers, mutual funds, investment advisers) must maintain records of all mandatory communications for a minimum of eight years and make these records available to SEBI upon request.
• The proposed regulation aims to improve regulatory compliance, enhance transparency, and safeguard investor interests in the securities market.

Scope of Mandatory Communications Under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

Let us analyze what could be included under the scope of mandatory communications with respect to SEBI’s Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015.

Pursuant to this consultation paper, SEBI plans to amend regulation 27 by inserting a new provision, 27A, as follows:

Records of Communications

27A. Wherever  under  these  regulations  or  the  circulars  issued  thereunder,  the listed  entity is  mandated to make any communication, the  listed entity shall:

• maintain   the   record of   such   communication   and  wherever   applicable,   the  acknowledgement thereof, for a period not less than eight years from the date  of such communication; and
• make record of such  communication and  wherever applicable, the acknowledgement  thereof , available to SEBI upon being required to furnish such records
• As per the proposed wording of regulation 27A, it is clear that mandatory communications required under the regulation, as well as communications mandated by SEBI or stock exchange circulars, must be preserved, along with their acknowledgments, for a minimum of eight years.

Examples of Circulars for Preservation – To understand which types of circulars would fall under the preservation requirement, let us see some examples :

• For example, SEBI’s circular dated March 16, 2023[i], outlines simplified norms for investor service requests, including the mandatory furnishing of PAN, KYC, and nomination details by holders of physical securities.
• It stresses compliance deadlines, procedures for updating information, and potential consequences for non-compliance, such as freezing folios.
• In point 20 of this circular, it is mentioned that listed companies must communicate the requirements of this circular and create awareness among stakeholders.
• Consequently, listed companies that have already communicated this information via mediums such as email will now be required to maintain records of such communications for a minimum of eight years.

Examples is SEBI’s circulars pertaining to the Online Dispute Resolution (ODR) mechanism [ii] dtd July 31,2023:

• This circular outlined a revised framework for handling complaints received through the SCORES platform and monitoring complaints by designated bodies.
• The circular also required listed entities to disseminate its contents on their respective websites. In the current context, this would imply that listed entities must preserve records of such website postings for eight years.
• Circular also delegated responsibility to listed entities in ensuring communication to investors or clients regarding availability of the SCOREs portal and the ODR  Portal  and  that  the  same  could  be  accessed  by  such investor/client  if  unsatisfied  with  the  response  (or  the  lack  thereof)  of  the  Market Participant [ All listed companies / specified intermediaries / regulated entities in the securities market are collectively referred as “Market Participant/s]. Hence in the current context, it would mean that this communication to investors has to be preserved along with acknowledgment of such communication for eight years.

Example of a SEBI circular on issuance of Securities in dematerialized form in case of Investor Service Requests dtd January 25,2022 [iii].

• The circular mentioned that  listed  companies  shall  henceforth  issue  the securities  in  dematerialized  form  only, while  processing  certain service request as mentioned therein.
• Investors  must submit Form ISR-4 and related documents to process their securities requests, with the original certificates required for certain requests.
• The Issuer Company was required to issue ‘Letter of Confirmation’ to notify the investor that their request for processing securities has been approved and to provide a substitute for the physical securities certificate.
• Hence in the current context, it would mean that this Letter of Confirmation is now required to be preserved for eight years.

Records of Communications Under SEBI Regulations:

In addition, various disclosures made by listed entities on recognized stock exchanges under regulations 30, 39(3), 34(1) , 30(10), reg.30(7)- whether material updates on already disclosed events are disclosed, reg.28 dealing with copies of in principle approval, Reg. 36 and 30(9) dealing with events of SEBI LODR and such other regulations, along with , communications related to show-cause notices issued by SEBI with respect to regulatory proceedings, would now need to be preserved for a minimum of eight years in context of proposed provisions of regulation 27A of SEBI LODR. As the proposed amendment will be made to regulation 27A, it will apply specifically to equity-listed entities if and when this regulation comes into force.

SEBI invites public comments on the proposed amendments by September 13, 2024.

Link to the Consultation Paper:

https://www.sebi.gov.in/reports-and-statistics/reports/aug-2024/consultation-paper-on-maintenance-of-record-of-mandatory-communication-by-regulated-entities_86309.html

[i] https://www.sebi.gov.in/legal/circulars/mar-2023/common-and-simplified-norms-for-processing-investor-s-service-requests-by-rtas-and-norms-for-furnishing-pan-kyc-details-and-nomination_69105.html

[ii] https://www.sebi.gov.in/legal/circulars/jul-2023/online-resolution-of-disputes-in-the-indian-securities-market_74794.html

[iii] https://www.sebi.gov.in/legal/circulars/jan-2022/issuance-of-securities-in-dematerialized-form-in-case-of-investor-service-requests_55542.html