3rd Anniversary of PIT Regulation applicability to IFCos
When and how will SEBI ‘implement’ the ‘mandatory’ regulation?
IFCo stands for Intermediary and Fiduciary entities. Intermediaries include
entities like Banks, Insurance companies, broking firms, merchant banks,
portfolio investors, and others regulated by SEBI. Fiduciaries include entities
such as Statutory (CA firms), Secretarial (PCS firms) Cost Auditors, Consultants,
etc.
From July 17, 2020, it became mandatory for IFCos to create and maintain a
Structured Digital Database (SDD) to track the inflow of Unpublished Price
Sensitive Information (UPSI) and its movement within the IFCo, till the
originating listed entity closed or disclosed the UPSI to its stock exchange/s.
So, July 17, 2023, is the 3rd anniversary of the regulation!
One would assume that 3 years is sufficient time to implement a mandatory
regulation. However, is it really implemented and followed by the regulations?
In informal polls of Company Secretaries and Chartered Accountants – the
Fiduciaries mentioned above – it is obvious that there is little awareness of the
existence of this requirement. Even less is their interest in complying with it.
Till the regulation is rigorously implemented by these entities, Insider Trading
can merrily continue!
What may be the possible reasons for the delay in compliance by fiduciaries?
We can think of at least three:
1. Over the last 3 years SEBI has not asked for Compliance with this aspect of
the Regulations. No proof of compliance has been demanded (yet).
2. There does not appear to be any straightforward way for the regulator to enforce compliance. SEBI does not regulate either the CA or CS professions. Their independent institutes do. So far, neither Institute has seriously exhorted its members to comply with the regulations.
3. The recent record of SEBI’s implementation of the same regulation, even with their direct regulatees – i.e. listed entities – is not well known. Out of 6,000 to 9,000 listed entities, between 1,000 or 1,500 have been inspected by NSE or BSE. There is no report of any company receiving any punitive action till now.
2. There does not appear to be any straightforward way for the regulator to enforce compliance. SEBI does not regulate either the CA or CS professions. Their independent institutes do. So far, neither Institute has seriously exhorted its members to comply with the regulations.
3. The recent record of SEBI’s implementation of the same regulation, even with their direct regulatees – i.e. listed entities – is not well known. Out of 6,000 to 9,000 listed entities, between 1,000 or 1,500 have been inspected by NSE or BSE. There is no report of any company receiving any punitive action till now.
On the background of the above, it may appear to fiduciaries that the regulator
will likely be an unhappy uncle, rather than an irate policeman!
However, like last August, if SEBI were to ask NSE and BSE to issue circulars to
their listed entity clients – to obtain confirmation of compliance from their
Statutory or Secretarial auditors – the situation may change.
Compliance professionals are waiting to be asked to comply by their own audit
clients before they comply on their own part!
It is somewhat like defunct traffic signals. The traffic signals were erected at the
crossroads, but since they didn’t operate, and there were no cameras and no
policemen, they did not become operational.
Should the market regulator implement its own ‘mandatory’ regulation with
some rigor, the professionals will comply. Then, the word ‘mandatory’ would
perhaps regain meaning.
Happy 3rd anniversary of the application of PIT Regulations to IFCos!