The Securities and Exchange Board of India (SEBI) is set to introduce comprehensive protocols for managing unsettled funds belonging to clients that are held by stock brokers. The forthcoming regulations will mandate stock brokers to actively endeavour to locate the investors and promptly refund their funds. Should the investors remain untraceable, the undistributed funds will then be channelled into the investor protection funds of stock exchanges.
This strategic measure is designed to facilitate the prompt and effective restitution of unclaimed client funds. Additionally, it will act as a deterrent against potential misuse of these funds by stock brokers.
Key facets of the new regulations include:
- Stock brokers must engage in efforts to locate investors over a span of 10 years.
- If, after the lapse of the 10-year period, the investors cannot be located, the undistributed funds will be transferred to the investor protection funds hosted by the stock exchanges.
- The investor protection funds are earmarked to provide compensation to investors who have suffered financial losses due to fraudulent activities or other irregularities.
SEBI’s decision to unveil these novel regulations is commendable, as it stands to safeguard the interests of investors and facilitate the prompt and efficient restitution of their unclaimed funds. This will guarantee the timely and efficient return of unclaimed client funds held by the trading members (TMs) to their respective clients.
SEBI in its annual report 2022-23 said, “It is proposed to have a detailed procedure for treatment of unclaimed funds of clients lying with the TMs, in which the TMs shall make efforts to find out the whereabouts of the clients for return of such funds.”
In September 2022, the SEBI directed all entities that have listed non-convertible securities to submit information about unclaimed redemption and dividend amounts. SEBI also announced that it would examine mandating digital assurance in respect of financial statements disclosed by listed entities.
The move to collect information about unclaimed redemption and dividend amounts is aimed at ensuring that investors are able to claim their rightful dues. SEBI estimates that there are billions of rupees in unclaimed redemption and dividend amounts lying with listed entities. By collecting this information, SEBI hopes to make it easier for investors to track down and claim their money.
The move to examine mandating digital assurance in respect of financial statements disclosed by listed entities is aimed at improving the reliability of financial information. Digital assurance is a process by which a qualified auditor uses digital technologies to provide assurance of the accuracy and completeness of financial information. By mandating digital assurance, SEBI hopes to reduce the risk of financial fraud and improve the transparency of financial markets.
These two moves by SEBI are a positive step towards protecting the interests of investors and improving the reliability of financial information in India.
The annual report read, “There is increasing availability of external information sources that provide information on the listed entity and its financial statements. An auditor may rely on such digital information, from external information sources in its routine nature of auditing.”
SEBI is actively exploring ways to enhance the engagement of retail investors in voting on resolutions put forth by listed companies. A range of proposals is under consideration by SEBI, including:
Facilitating voting accessibility via the websites or applications of brokers and depository participants. This streamlined approach would eliminate the need for investors to navigate a separate voting procedure.
Simplifying the process of accessing reports from proxy advisors. These independent assessments of voting matters can provide valuable insights to investors, aiding them in making well-informed choices.
In addition to these, SEBI is evaluating other concepts, such as introducing financial incentives for participating investors. The overarching objective is to elevate the involvement of retail investors in the voting process, thereby contributing to the enhancement of corporate governance standards in India.
Further insights into the proposals include:
- Voting through broker and depository participant platforms: This method offers investors the convenience of voting from their own homes. SEBI is collaborating with brokers and depository participants to establish the requisite systems and protocols.
- Access to proxy advisor reports: SEBI is contemplating the option of making proxy advisor reports accessible through its website or a mobile application. This user-friendly approach would facilitate investor access to informative reports, aiding them in shaping their voting decisions.
- Financial incentives for participating investors: The SEBI is pondering over the prospect of providing financial incentives, potentially in the form of reduced brokerage fees or other advantages, to investors who actively participate in voting. The objective is to encourage heightened participation and subsequently bolster corporate governance practices in India.
SEBI's proposals signify a commendable stride towards amplifying retail investor engagement in the voting process. If executed, these initiatives would simplify voting procedures, empower investors with well-informed choices, and contribute positively to the realm of corporate governance in India.
