Law must be forged on the anvil of foresight, but even the farthest foresight cannot prevent it from being laden with gaps and ambiguities that may be exploited by the unscrupulous. This is the reason why lawmakers often have to engage in the process of revamping laws. However, in the pursuit of making the laws foolproof, sometimes laws can become a tad too complicated or burdensome on those governed by them. Hence, lawmakers must regularly assess the practicability of the norms laid down and consider toning them down, wherever necessary.
Facing the burden and stigma of non-compliance would be an unjust consequence for those who intend to follow the law but are unable to do so owing to its excessively onerous or ambiguous nature. Any such revamping or toning down of laws, especially those in the nature of regulatory frameworks, must be done after consulting with the stakeholders and the public in order for it to have the intended effect.
The budget speech for FY2023-24 rightly put forth the proposal to simplify and ease compliance in the financial sector by carrying out a comprehensive review of the regulatory frameworks after consultation with the public and regulated entities. Pursuant to this, market regulator Sebi issued a press release on 4 October inviting suggestions from stakeholders towards simplifying the framework under 25 regulations dealing with listing, takeover and those governing intermediaries and market infrastructure institutions. Surprisingly, the regulations on prohibition of insider trading do not find a place here despite the May consultation paper revisiting the definition of unpublished price sensitive information awaiting action. Sebi has formed 16 working groups under the standing advisory committees to review compliance requirements.
There are some areas that have been becoming increasingly complicated and might require some simplification. Requirements in respect of related party transactions and disclosures of material events, including rumour verification, are some areas where the regulations seem to have become relatively more complex and cumbersome to comply with.
Sebi has already initiated the mechanism of industry standards forum to work on standardisation of practices in respect of four areas: rumour verification, disclosures of material events, ESG assurance under the listing regulations and structured digital database under the prohibition of insider trading regulations. While this measure will bring more clarity on how to comply, information on whether some regulation is unduly burdensome is something that the regulated entities must pitch in with during the present consultation process. This is akin to a situation where a doctor prescribes a medicine in good faith, but if the patient develops unforeseen complications, he must promptly inform the doctor to enable timely intervention.
For example, the term ‘related party transactions’ has rightly been given a very wide import under the listing regulations, but concepts under it like transactions with unrelated parties ‘the purpose and effect of which is to benefit a related party’ need further clarity. This may not necessarily warrant simplification, but certainly needs guidance to enable ease of compliance. On the other hand, although the definition provides for it, whether transactions in which a price is not charged are actually captured in the disclosures by corporations is a million-dollar question. This needs to be emphasised through appropriate guidance.
Sebi could consider automating a few more disclosures on the lines of the system driven disclosures currently in place under the takeover regulations and the prohibition of insider trading regulations. For example, by requiring compulsory real-time intimation of offline investor complaints, Sebi may pave the way for automated, consolidated and real-time disclosures on overall status of investor grievances instead of a quarterly one.
A centralised monitoring mechanism for rumour verification may be considered so that rumours could be verified by companies with minimal efforts. Clarity may be brought in respect of disclosure of material events, particularly on actions taken and orders passed by authorities, given that these should be disclosed without applying materiality thresholds.
Sebi gives detailed instructions on compliance through its circulars and has been consolidating them as master circulars under specific regulations. Just like how Sebi promptly updates its regulations, it may consider updating the master circulars with each change to the circulars to enable ease of reference. Suggestions can be sent till 6 November.
Usha Ganapathy Subramanian is a practising company secretary and Dr.Ranjith Krishnan is an academician.
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Updated: 01 Nov 2023, 09:57 PM IST