Institutional Framework For Financial Consumer Protection in IndiaFocus on complaint redress
OCTOBER 3, 2013, YERAVAN
Gyan Bhushan, Chief General Manager
Securities and Exchange Board of India (SEBI)
Agenda
• Overall architecture
• How does it work
• Outcomes
• Challenges
• Q&A
10/8/2013 2
Overall architecture
• Sectored approach in Financial Markets
• Banking and credit- RBI (Reserve Bank of India)
• Securities market- SEBI
• Insurance market- IRDA (Insurance Regulatory and
Development Authority)
• Pension market- PFRDA (Pension Fund Regulatory and
Development Authority)
• Commodities market- FMC (Forward Market Commission)
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THE MANDATE of SEBI
INVESTOR
PROTECTION
REGULATIONDEVELOPMENT
ENSHRINED IN PREAMBLE TO THE SEBI ACT
Complaint redress in securities market
• SEBI’s Investor Grievance Redress Mechanism
– SCORES ( SEBI Complaints Redress System)
– How SCORES works
– SEBI Toll free Helpline
– Other investor friendly systemic and policy measures
• Challenges
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Complaint redress
• Jun 2011- Launch of SEBI Complaint Redress System (SCORES)
• Dec 2011- Launch of SEBI Toll Free Helpline
• 2012 – Opening of 4 additional centers for Investor Grievance
Redressal by stock exchanges
– Arbitration Committee made independent
– Opening of local offices by SEBI
– Investor friendly systemic and policy measures
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SCORES
• Web enabled and online access 24 x 7
• Service at no cost and facility for tracking at every stage by
investors
• No physical movement of papers
• Integration with CPGRAMS(Public grievance portal of Govt of
India)
• Model to other regulators: Domestic and International
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How SCORES works
• Investor • SEBI • Recognised intermediaries / Companies
2. Uploaded
on SCORES1. Complaint –
Physical / Online
through SCORES
Assistance
through
helpline
letter
SMSE mail
3. Analysis and
categorisation
4. Transmission
to companies/
registered
intermediariesSystemic
and policy
changes
Reminders
/alerts
Clarifications from
Investor
5. Analysis of
Action taken
report
Further
clarifications6. Complaint
closedQuality
check
random
calls
At any point of time, the investors can see the name and contact
details of the SEBI officer10/8/2013 8
What are the types of complaints handled by SEBI?
• Complaints arising out of activities that are covered under SEBI Act, 1992;
• Securities Contract Regulation Act,1956;• Depositories Act,1996 • Rules and Regulations made there under and • Provisions that are covered under Section 55A of
Companies Act, 1956
Which are the matters that are not considered as complaints by SEBI?
• Complaints that are incomplete or not specific • Allegations without supporting documents • Offering suggestions or seeking guidance/explanation • Seeking explanation for non-trading of shares or
illiquidity of shares • Not satisfied with trading price of the shares of the
companies • Non-listing of shares of private offer • Disputes arise out of private agreement with
companies/intermediaries
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What type of complaints are not handled by SEBI?
• Complaints against unlisted/delisted/wound up/liquidated/sick companies
• Loan transactions with brokers
• Fraud committed by brokers on private transactions (ex: purchase of flat)
• Multilevel marketing companies /Gold loan by Jewelers
• Complaints that are sub-judice (relating to cases which are under consideration by court of law, quasi- judicial proceedings etc.)
• Complaints falling under the purview of other regulatory bodies viz.RBI, IRDA, PFRDA, CCI, FMC, etc., or under the purview of other ministries viz., MCA, etc.
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Which are the Regulators/Authorities to approach for other types of complaints?
• Reserve Bank of India (RBI)
• Insurance Regulatory and Development Authority of India (IRDA)
• Forward Market Commission (FMC)
• Pension Fund Regulatory and Development Authority (PFRDA)
• Competition Commission of India (CCI)
• National Housing Bank (NHB)
• Registrars of Chit Funds of the concerned state.
• Ministry of Corporate Affairs(MCA)
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SCORES : The features (Investors)
• Provision of single complaint registration form.• Provision for lodging multiple nature of complaints
against any selected entity.• A unique Registration Number is provided for status
tracking. • E-mail acknowledgement to the complainant• E-mail alerts to the complainant• Investors may also send physical complaints which
would be forwarded in electronic form• Investors can also be the registered users to lodge
and monitor their complaints
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SCORES : The features (SEBI)
• Entry of physical receipts and integration with online receipts made possible.
• Physical receipts at different Regional Offices are integrated onto a single Database
• Supporting documents can be attached• E-mail acknowledgement to the complainant for
physical complaints, if e-mail is provided• E-mail alerts to the officers • Complaints would be reflected on the desk of
concerned dealing officer for further action• Online forwarding at all levels
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SCORES : The features (Entities ( Companies/Registered intermediaries)
• Can view the supporting documents and take action• The ATR can be sent online by the concerned entity.• E-mail alerts to the entities are built-in • Online forwarding/receipts of ATR is enabled• Seeking online clarification is enabled• Receipt of online reply to clarifications made possible
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SCORES : The features (SEBI & Entities)
• Online reminders can be sent
• Clarifications can be sought online
• Search provided based on– Name, Registration Number & Address– PAN– State– SEBI Inward number (physical receipts)
• Standard letters can be generated
• MIS reports with drill-down feature are built-in
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IGRCs and IGRPs at Stock Exchanges •Stock Exchanges have designated Investor Grievance Redressal Committees(IGRCs), or Regional Investor Complaints Resolution Committees (RICRC), IGRC isan administrative effort towards arriving at amicable understanding between theparties.
•This forum acts as a mediator to resolve the claims, disputes and differencesbetween entities and complainants in the presence of IGRC panel member(independent person). The qualifications are similar as that of an arbitrator
•In case of claim amount is less than Rs. 25 lakh, there will a sole person fromIGRC. In case the claim is more than Rs.25 lakh, there will be a panel of threemembers.
•The committee calls for the parties and acts as a nodal point to resolve thegrievances. For any detailed information please visit the website of the respectivestock exchange.
•If the grievance is still not resolved, an investor can file arbitration under theRules, Bye – laws and Regulations of the respective Stock Exchange/Depository
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Arbitration mechanism
• Legal Framework
– Arbitration Act, Bye Laws of Stock Exchange, Depositaries
• Grievance pertaining to brokers, DPs and listed companies
• Investor Grievance cell (IGC) of Stock Exchange provides platform
• Matters referred if :
-IGC unable to redress the grievance
-both parties agree for arbitration
- Compensation for delay in transfer of shares by listed cos. (cl-12A-3 of LA)
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Amount of Claim /
Counter claim,
whichever is higher
If claim is filed within 6
months
If claim is filed after six
months
> 10,00,000 - ≤
25,00,000/-
Rs. 13,000 plus 0.3%
amount above Rs 10 Lakh
Rs. 39,000 plus 0.9% amount
above Rs 10 Lakh
> 25,00,000
Rs. 17,500 plus 0.2%
amount above Rs 25 Lakh
subject to maximum of Rs.
30,000/-
Rs. 52,500 plus 0.6% amount
above Rs 25 Lakh subject to
maximum of Rs. 90,000/-
•Arbitration mechanism Contd………….• A client, who has claim / counter claim upto Rs. 10 lakh andfiles arbitration reference, shall be exempt from the deposit.Expenses thus arising with regard to such applications shall beborne by the Stock Exchanges. For claim above Rs. 10 lakh, thefollowing is the fee structure.
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Arbitration mechanism Contd………….
In all cases, on issue of the arbitral award the stock exchangeshall refund the deposit to the party in whose favor theaward has been passed.
The Stock Exchanges having nationwide terminals have toconduct arbitration proceedings at eight centres viz, Delhi,Mumbai, Kolkata, Chennai, Ahmedabad, Hyderabad, Kanpurand Indore.
The arbitration and appellate arbitration shall be conductedat the regional centre nearest to the client.
The stock exchange discloses on its website, details ofdisposal of arbitration proceedings as per format prescribedby SEBI and details of arbitrator-wise disposal of arbitrationproceedings as per prescribed format.
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Arbitration mechanism Contd………….
A party aggrieved by an arbitral award may appeal to the appellatepanel of arbitrators of the stock exchange against such award.
The appellate panel shall consist of three arbitrators who shall bedifferent from the ones who passed the arbitral award appealedagainst.
The appeal shall be disposed of within three months from the dateof appointment of appellate panel of such appeal by way of issue ofan appellate arbitral award.
A party aggrieved by the appellate arbitral award may file anapplication to the Court of competent jurisdiction in accordancewith Section 34 of the Arbitration and Conciliation Act, 1996.
10/8/2013 21
Arbitration mechanism Contd…
– Appellate mechanism in all National stock exchanges
made operational
– No brokers to be on the arbitration panel
– The limitation period for filing arbitration enhanced from 3
months to 3 years in terms of Limitation Act, 1963.
– Investors given the right to choose arbitrator(s) from the
panel unlike earlier practice of assigning an arbitrator by the
exchange
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OMBUDSMAN
Provisions Banking Sector Insurance Sector
Scheme/Guideline 1995 1998
Grounds of
Complaint
Matters falling under RBI
jurisdiction for deficiency in
banking services and allied
matters or such other
matters as may be specified
by RBI. Specific instances
enumerated at clause 8.
Any insurance related
complaint – primarily
related to inordinate delay
in settling claims or for
deficiency in service.
Award Rs.10 Lakh Rs.20 lakh.
Appeal Deputy Governor No Appeal
10/8/2013 23
Legal recourse
• Lok Adalats
• Consumer Forums
• Courts
10/8/2013 24
SEBI Toll Free helpline
• Launched on December 30, 2011
• 1800 266 7575 / 1800 22 7575
• Monday to Friday – 9.30 to 5.30 – 14 languages
• Saturday and Sunday – 9.30 to 5.30 - 4 languages
• 2,37,641 cumulative calls attended to until August 31, 2013
• Facility of call back to investors
10/8/2013 25
Investor friendly systemic and policy measures
• Enforcement Actions
– Consent mechanism now not available tocompanies/intermediaries in regulatory actionsrelating to non-redressal of investor complaints
– Action taken against corporates/ directors for nonredressal of grievances
Year Orders passed Adjudicating proceedings initiated
2011-12 15 5
2012-13 *(* as on 31January 2013)
15 364
10/8/2013 26
Investor friendly systemic and policy measures
• Others
– Stock Exchanges to send SMS and E-mail alerts to the investors on
the transactions to prevent un authorised trades
– Disclosure on the websites of SEs/ Depositories on complaints/
arbitration and penal actions
– Enhanced Level of Compliance and Revision in Periodical Reports
for intermediaries
– To reach out to investors, local offices opened in Jaipur, Bengaluru,
Guwahati, Bhubaneswar, Indore, Kochi, Hyderabad, Lucknow, Patna
and Chandigarh. Six more local offices to be opened this FY
10/8/2013 27
Investor friendly systemic and policy measures
• Others– Introduction of Application Supported by Block Amount
(ASBA) in order to prevent refund related complaints
– Single KYC in securities market to avoid duplication of
KYC process and reduce cost to investors and
intermediaries
– Basic Services Demat Account ( BSDA) introduced
10/8/2013 28
Investor friendly systemic and policy measures
• Others– Shareholders /Investors grievance Committee under
Clause 49 of listing agreement
– Shareholders’ complaints received and pending to be
compulsorily part of Annual report
– Display of name of companies with pending cases more
than 10 for more than 60 days
10/8/2013 29
Investor protection-Systemic changes
No consent for insider trading and fraudulent trade practices or non
compliance of SEBI orders or failure to redress investor grievance
Printing of Grievances Redressal Mechanism on Delivery
Instruction Form Book issued by all Depository Participants.
Reduction in time line for registering the transfer of shares / debt
securities to 15 days to expedite the transfer process in the interest
of the investors
10/8/2013 30
Outcomes of recent measures taken by SEBI
• Improvement in redressal rate
Period
GRIEVANCES / DURING THE MONTH
Received Disposed % of disposal
2012-13 42411 54852 129.33
2011-12 46548 53841 115.66
2010-11 56670 66552 117.43
10/8/2013 31
Outcomes of recent measures taken by SEBI
Age analysis of PAG
Pending as on June 2013
DISPOSED in July 2013
Pending as on July 2013
No of daysNo of
complaints %No of
complaints % No of
complaints
0 TO 30 1,761 17.53 1,985 57.42 2,053
31 TO 60 1,131 11.26 524 15.16 927
61 TO 180 2,872 28.59 633 18.31 2,450
181 TO 360 931 9.27 124 3.59 1,425
361 TO 792 1,599 15.92 102 2.95 1,619
Pre scores 1,751 17.43 66 1.91 1,685
Regulatory-action 23 0.67 0
Grand Total 10,045 100.00 3,457 100.00 10,159 10/8/2013 32
Outcomes of recent measures taken by SEBI
• Investor complaint flow doubled since December 2012
– Effective media campaign launched by SEBI
– Ranked 4th best advertisement in 2012 by NDTV.
– Awareness regarding SCORES and helpline through financial education programs conducted by Resource Persons
10/8/2013 33
Outcomes
• A comparison across regulators
Financial Year SEBI RBI IRDA
Received 46,548 72,889 22,340
Disposed 53,841 72,885 21,185
Disposal Rate 115.67% 98.64% 94.83%
Source: Annual Reports of 2011-12
10/8/2013 34
Outcomes
• Qualified foreign investors (QFIs) allowed to invest inthe primary as well as secondary markets;
• Introduction of Electronic initial public offers (e-IPOs);• Requiring companies to attain the minimum public
shareholding of 25 per cent by June 2013 andfacilitating companies to achieve the target byintroduction of additional methods;
• Introduction of the Rajiv Gandhi Equity Savings Scheme,2012;
• Implementation of various steps to re-energise mutualfund industry, increase penetration of mutual fundproducts, improve distribution network and protectinvestors.
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Challenges- legal and others
• Broker client disputes– SEBI Act and SCR Act - no provision for settling disputes
and awarding money compensation– Any money compensation related adjudication is not
within SEBI's powers– SAT also held that contractual disputes can not be
adjudicated by SEBI ( Ibrahim Ahmed vs. SEBI, MCS Ltd.vs. SEBI, Hameed Ullah Lalji vs. SEBI)
• Ombudsman Scheme– The Scheme could not be operationalised due to legal infirmity viz. lack of
power to award monetary compensation to investors and lack of anyenforcement mechanisms
• Sick/delisted/suspended/non-traceable companies– Many listed companies outside SCORES system and in the category of sick /
delisted / suspended / non-traceable companies (estimated to be 4600 out of atotal of 9464)
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National Strategy on Financial Education
Financial consumer protection: Approach on
education
10/8/2013 37
Vision and Mission Statement
“ A Financially aware and empowered India ”
“To undertake massive Financial Education campaign to
help people manage money more effectively to
achieve financial well being by accessing appropriate
financial products and services through regulated
entities with fair and transparent machinery for
consumer protection and grievance redressal.”
10/8/2013 38
Goals
• Create awareness and educate consumers on access to
financial services, availability of various types of products and
their features.
• Change attitudes to translate knowledge into behaviour.
• Make consumers understand their rights and responsibilities
as clients of financial services.
10/8/2013 39
Action Plan with time frame
Five Year Time frame
Inclusion of basic FE in
School Curricula up to
senior sec. level
Structure as
envisaged in this
document
Initial contact up to
500 million adults
Awareness about consumer protection and
grievances redressalmachinery
Financial Education to be delivered by trained
persons in a format suitable to each target
group
10/8/2013 40
Stakeholders
Individuals resident in India
Financial Market Players
Educational Institutions
Non Governmental Organizations
Financial Sector Regulators
Multilateral international
players
Government- both Central and State
10/8/2013 41
Other
Ministries
FSDC (Financial Stability and Development Council)
Sub-committee of FSDC
Technical Group for financial inclusion and financial literacy
Two
representatives
from state
education
department
RBI
Basic (FE) for
Adults
Sector Specific
Product Specific
IRDA
Basic
(FE) for
Adults
Product
Specific
Sector
Specific
PFRDA
Basic
(FE) for
Adults
Product
Specific
Sector
Specific
SEBI
Basic (FE)
for Adults
Sector Specific
Product Specific
MoF for
facilitation /
MHRD for
implementation
Basic Financial
Education
(FE)through schools
NIFE/NISM
Maintenance of
financial education
website
Development
of content
Research Data collection and
monitoring of FE10/8/2013 42
Guidance
Regulators
• Content Development
• Deputing experts
• Interloculator and
facilitator
• Basic FE & Sector
specific FE
• FE Cell/ Dept.
• Guidelines for product
development
• Reports to NIFE
Commercial FIs
• Product Education as per content developed by NIFE
• CSR
• Reports to NIFE
NGOs
• Participate in FE
as per content
developed by NIFE
• Reports to NIFE
Other Authorities
• may participate by
extending infrastructure
• follow content by NIFE
Industry Associations
• Content development
• Resources for
conducting programs
• Resources not used
for promotion
• Reports to NIFE
10/8/2013 43
Challenges and road ahead
• From Financial education to “Financial education
and inclusion”
• Issue of Investor protection
• Issue of turf and coordination among agencies
•Case for unified approach
• National strategies
10/8/2013 44
a) Campaign on Investor Grievance redressal System
a) Campaigns on Collective Investment Scheme
• Unrealistic returns
• Don’t go on hearsay
Some efforts for investor awareness- audio visual
10/8/2013 45
THANK YOU.
www.sebi.gov.in
10/8/2013 46