The board of Securities and Exchange Board of India (Sebi) will finalize norms for so-called regulatory sandboxes, proxy advisors and Infrastructure Investment Trusts (InvITs) at its 17 February meeting, the last to be headed by chairman Ajay Tyagi unless he gets an extension, two people with direct knowledge of the matter said.
Tyagi, whose three-year tenure at the helm of Sebi ends in March, is eligible for renewal for up to two years. Several of his unfinished initiatives are on the agenda of the Sebi board, but due to divided opinions and lack of government clearances, the board will finalize only the above three which are solely under its regulatory domain, the people cited above said on condition of anonymity.
A regulatory sandbox, which is under Sebi’s consideration, is a framework that permits live-testing of new financial products or services in a controlled environment. “The exchanges and market infrastructure institutes have already implemented innovative sandboxes on their end. So, this time, we are taking to the board the regulatory sandbox which will not just allow companies to test their fintech solutions in isolation from live market, but also enable Sebi to form policies and regulations encouraging them,” said a regulatory official, one of the two people cited earlier.
Sebi on 29 May issued a discussion paper on regulatory sandbox, proposing to allow entities to live-test new products, processes, services and business models on a limited set of customers or investors for a specified period.
“Sebi will grant them certain relaxations from some regulations and guidelines,” the official said, adding relaxations will be granted on only those items which are hampering the proposed innovations and “acting as barriers to entry of new products”.
Sebi is also expected to finalize norms outlined in the discussion paper it issued in August, which was aimed to address conflicts of interest and ensure independence of proxy advisory firms making recommendations on key company resolutions.
“The norms may be finalized during this board meet. It will also address the issue of accountability of global proxy firms when they issue recommendations on domestic firms,” the second person cited above said.
Proxy firms will be required to disclose the methodologies and processes used in the development of their research and recommendations. Simply put, they will have to provide the rationale and justifications for their recommendations.
Norms on proxy firms will impact three such entities in India– Stakeholder Empowerment Services (SES), Institutional Investor Advisory Services (IIAS) and InGovern Research.
Regulations pertaining to investment manager eligibility of InvITs will also undergo tweaks. Under current norms, an InvIT manager must have experience of five years in fund management or advisory services or development in the infrastructure sector. The manager needs to have at least two employees, each with five years of experience in the infrastructure sector.
Sebi is considering a second option that the combined experience from 15 years could be doubled to 30 years to be met by directors/partners/employees having individual experience of at least five years.
Other important issues such as finalizing investment advisor regulations and overseas listing of Indian companies will remain on hold.
The investment advisor regulations, even in its third attempt, have met with strong opposition from the industry and divided opinions. Proposed rules around segregation of clients on the basis of advisory and distribution have led to fears that advisors could be forced to ask customers to redeem their funds.