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

10/8/2013 5

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)

10/8/2013 12

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

10/8/2013 13

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

10/8/2013 15

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.

10/8/2013 19

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.

10/8/2013 35

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)

10/8/2013 36

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