Sebi chairman UK Sinha, who initiated reforms in the consent process, said last Saturday that the changes to the consent order system will be unveiled in 7-10 days. Sebi has discussed the changes with the finance ministry.
The new system links the penalty under consent proportionate to the loss to the investors, the gain to the violators and the repetitiveness of violations, said a senior official. Consent orders are used by regulators globally for market-related offences to rap offenders where clear evidence to support prosecution is hard to obtain. Under the consent order system, first introduced in 2007, charges against companies accused of regulatory violations are dropped once a settlement charge is paid, without admitting or denying guilt.
Sebi initiated changes to bring about objectivity, consistency and transparency in these settlement proceedings undertaken by the whole-time members.
Sebi has collected over R200 crore in fines since the consent system was introduced, passing more than 1,000 orders. An internal study conducted by Sebi recently pointed out the arbitrary nature of the consent order system.
The new system could also introduce the minimum consent amount. Besides, all violation cases of a corporate group or one person will be taken into account, prior to passing a consent order rather than discussing these on individual basis. Sebi is empowered to pass consent orders under Section 15T of the Sebi Act and Section 23 A of the Depositories Act. The system was introduced as a flexible mechanism of enforcement, which would save regulatory costs and make the enforcement less time-consuming.
In January 2011, for example, Anil Ambani-controlled companies Reliance Infrastructure and Reliance Natural Resources collectively paid R50 crore to Sebi for settling charges. These companies were found putting money raised through external commercial borrowings into the stock market, a violation of existing regulations.