Standard Operating Procedure: SEBI Non-Compliance Remediation

This Standard Operating Procedure (SOP) outlines the mandatory protocols for identifying, reporting, and rectifying instances of non-compliance with the Securities and Exchange Board of India (SEBI) regulations. As an entity regulated under SEBI, strict adherence to these guidelines is vital to mitigate legal risk, prevent financial penalties, and maintain the integrity of our operating license. This document is intended for use by the Compliance Department, Legal Counsel, and Senior Management to ensure a standardized, transparent, and prompt resolution to all regulatory breaches.

1. Detection and Preliminary Assessment

• Identify the Trigger: Document the source of discovery (e.g., internal audit, system alert, whistleblower report, or formal communication/Show Cause Notice from SEBI).
• Establish the Breach Type: Classify the non-compliance (e.g., disclosure violation, insider trading regulation breach, KYC/AML failure, or reporting delay).
• Containment: Immediately halt the specific activity leading to the non-compliance to prevent further regulatory damage.
• Initial Impact Analysis: Determine the duration of the non-compliance and identify the specific SEBI regulations or circulars affected.

2. Internal Investigation and Evidence Gathering

• Data Preservation: Secure all relevant logs, email correspondence, transaction records, and board minutes pertaining to the breach.
• Root Cause Analysis (RCA): Conduct a formal inquiry to determine whether the breach resulted from human error, systemic failure, or lack of internal policy clarity.
• Drafting the Fact Sheet: Prepare a comprehensive chronology of events, including when the non-compliance began and when it was identified by the internal team.
• Consultation: Engage internal legal counsel to determine the severity and the potential financial or reputational exposure.

3. Mandatory Reporting and Disclosure

• Board Intimation: Notify the Board of Directors and the Audit Committee immediately regarding the nature of the non-compliance.
• Regulatory Filing: If the breach is material, file the required disclosures with the Stock Exchanges (BSE/NSE) and/or directly with SEBI as per the Listing Obligations and Disclosure Requirements (LODR).
• Drafting the Response: Prepare a formal written response to any Show Cause Notice (SCN) received from SEBI, ensuring all legal defenses and remedial actions are articulated clearly.
• Authorized Signatory: Ensure that all formal communications to the regulator are signed by the Compliance Officer or the Managing Director/CEO.

4. Remediation and Post-Mortem

• Corrective Action Plan (CAP): Develop a documented plan to rectify the issue, including technical fixes, policy amendments, or staffing changes.
• Implementation: Execute the CAP within the timeline mandated by SEBI or as agreed upon during regulatory hearings.
• Internal Audit Verification: Once the fix is implemented, request the Internal Audit team to verify and certify the closure of the non-compliance issue.
• Preventative Training: Conduct mandatory compliance training for relevant departments to prevent a recurrence of the same error.

Pro Tips & Pitfalls

• Pro Tip: Maintain a 'Compliance Ledger' that tracks every interaction with SEBI; this serves as an essential repository of "good faith" evidence during inspections.
• Pro Tip: Always seek external legal advice if the non-compliance involves potential criminal liability or systemic market impact.
• Pitfall: Never attempt to hide or delay the disclosure of a material breach. SEBI’s surveillance systems are sophisticated, and "non-disclosure of non-compliance" is often penalized more severely than the original breach itself.
• Pitfall: Avoid generic responses in your SCN reply. Tailor every response to the specific facts of the case, supported by documentary evidence.

Frequently Asked Questions (FAQ)

1. What is the deadline for responding to a SEBI Show Cause Notice? Generally, SEBI provides a window of 15 to 30 days to respond to an SCN. However, you should check the specific notice for the exact deadline and request an extension in writing if you require more time for investigation.

2. Is every non-compliance required to be disclosed to the public? Not necessarily. Disclosure is governed by the materiality policy of your organization and the specific SEBI LODR requirements. Consult your Legal Counsel to determine if the breach constitutes "price-sensitive information" that requires immediate public disclosure.

3. What happens if the internal RCA contradicts the SEBI findings? Present your findings objectively with supporting evidence. In many cases, if you can prove that the breach was unintentional and that robust internal controls were in place, SEBI may consider it a mitigating factor during the adjudication process.

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