INSUBCONTINENT EXCLUSIVE:
NEW DELHI: To check financial frauds, regulator Sebi has proposed a new set of norms for auditors and other fiduciaries working with listed
firms, under which defaulters will face stringent penal actions, including ban from securities markets and disgorgement of fees.
Those found
guilty of providing wrong audit or valuation reports would have to cough up any unlawful gains they might have made in the process.
The
proposed move assumes significance as the role of auditors and valuers has come under scanner in a number of high-profile cases such as the
Satyam and Kingfisher frauds, as also the PNB scam, WhatsApp leak and the Fortis matter in the recent past.
Sebi is looking to enhance the
regulatory oversight to check such frauds in future with the new regulations for fiduciaries in the securities markets.
The Securities and
Exchange Board of India (Sebi) has issued a public consultation paper, on which comments have been sought from all stakeholders till August
The final norms would be framed after taking into account all the comments.
Asked about the rationale behind a new set of norms, a senior
official said investor confidence is fundamental to the successful operation of securities market and it depends on investors having
credible and reliable financial information when making decisions about capital allocation.
"One of the prime objectives of Sebi is to
ensure that there should be full, timely and accurate disclosure of financial results and other information that is material to investors'
decision," he said.
Earlier, Sebi had proposed to bring in a new set of regulations for fiduciaries working directly or indirectly in the
But its board felt that the regulator should rather amend various existing regulations concerning different market intermediaries and
different issues to make necessary provisions for regulating those fiduciaries that do not come under Sebi's regulatory
ambit.
Accordingly, Sebi has now decided to amend as many as 31 regulations to ensure that whenever a fiduciary undertakes any
engagement/assignment under the securities laws with respect to any listed company, pooled investments, restructuring, intermediary or
investors in securities and issues any certificate or report, such a fiduciary shall ensure that it is true in all material respects.
While
entities such as merchant bankers, rating agencies, custodians, debenture trustees and registrar to public issues are registered with the
capital markets regulator under specific regulations, some other fiduciaries like practising chartered accountants and company secretaries,
cost accountants, valuers and monitoring agencies are not registered with Sebi.
To fill this gap, a high-level panel on corporate
governance, headed by eminent banker Uday Kotak, had also suggested that Sebi should have clear powers to act against auditors and other
third-party fiduciaries with statutory duties in case of frauds as well as gross negligence.
Issuing the consultation paper, Sebi said it is
already empowered to issue directions to any person associated with the securities market (including fiduciaries), in the interest of
investors or for its orderly development.
Under its provisions, Sebi, through its enforcement proceedings has taken action in the past,
against various fiduciaries.
However, since these fiduciaries are not specifically registered with the regulator or regulated by it under
any regulation, there may be a need to clarify and specify the actions that may be taken by Sebi against such fiduciaries in case they
submit false reports or certificates.
According to the proposed amendments to the regulations, a fiduciary who submits or issues any
certificate or report should ensure that it is true in all material respects, while exercising due care, skill and diligence and ensuring
proper care with respect to all processes involved in its issuance.
Besides, the fiduciary has to report in writing to the audit committee
of the listed company or to the compliance officer in case of an intermediary, and trustee in case of pooled investment vehicle, any
material violation of securities laws, noticed while undertaking such an assignment.
The regulator also clarified that if after an inquiry
or investigation, it is satisfied that the fiduciary has submitted false certificate or report or has violated any of the provisions, it may
take appropriate action under the concerned securities laws against the fiduciary, its engagement partner or director.
As per the regulatory
norms, "engagement partner" means the partner or any other person in the firm or limited liability partnership, who is responsible for the
engagement or assignment and its performance, and for the report or the certificate issued on behalf of the firm or limited liability
partnership, and has the appropriate authority from a professional body.
A fiduciary who submits or issues any certificate or report has to
exercise due care, skill and diligence and ensure proper care with respect to all processes involved in its issuance, the consultation paper
said.
It also has to ensure that such a certificate or report issued is true in all material respect, while report in writing to the audit
committee of the listed company, any material violation of securities laws, noticed while undertaking such an assignment.
"The Board (Sebi),
if after making or causing to be made an inquiry or investigation, is satisfied that the fiduciary has submitted a false certificate or
report, or has violated any provision of these regulations, may take appropriate actions under the securities laws, against the fiduciary,
its engagement partner or director, as the case may be," the consultation paper said.
Besides, Sebi can order disgorgement of wrongful
gains, including the fees earned, with an interest of 12 per cent per annum from the date of default; ban the fiduciary from issuing any
certificate or report; and refer the case to the Institute of Company Secretaries of India (ICSI) or the Institute of Chartered Accountants
of India (ICAI), or any other authority for appropriate action
