How SEBI's new framework will help investors resolve disputes with intermediaries

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How SEBI's new framework will help investors resolve disputes with intermediaries

Authored by Mohit Ralhan, Chief Executive Officer, TIW Capital

The surge in investor participation in Indian financial markets has underscored the need for a robust dispute resolution mechanism. As more individuals and institutional investors engage in the capital markets, ensuring fair and timely resolution of disputes becomes crucial to maintaining their trust and confidence. The Securities and Exchange Board of India (SEBI) recognized this imperative and responded by enacting a new framework for dispute resolution and grievance redressal between investors and intermediaries. The framework encompasses a more comprehensive list of intermediaries and streamlines the earlier process of grievance resolution and adjudication.

Under the new framework, SEBI has introduced two complementary platforms for grievance redressal: the SCORES platform and the Online Dispute Resolution (ODR) platform. These enhancements are geared towards streamlining the dispute resolution process, making it more accessible, efficient, and cost-effective for investors.

The SCORES platform enables investors to seek timely redressal of grievances directly with the entities. Intermediaries are required to respond and resolve any grievances within 21 days of receipt of the complaint, and the Action Taken Report (ATR) must be uploaded on SCORES. If the complainant is satisfied with the response and no request for review is made by the complainant within 15 days, the complaint will be closed.

However, if investors remain dissatisfied with the redressal provided by entities on the SCORES platform, they are given the opportunity for two levels of review before opting for the ODR mechanism. The first review will be automatically undertaken by the first-line regulator (FLR) (which includes MIIs, BASL) or trade bodies. If the complainant is still not satisfied with the outcome, they can approach SEBI for a further review within 15 days.

The introduction of the ODR platform provides a valuable option for investors seeking adjudication and amicable settlements beyond the initial attempts at resolution. The platform offers a hybrid approach to dispute resolution, combining both online and offline processes, with the possibility of moving towards a completely online process in the future, which will improve the cost-effectiveness and timeliness of the process. The hybrid approach can be facilitated through Investor Service Centres (ISC) of Market Infrastructure Institutions (MIIs) (including exchanges and depositories).

To ensure a fair and balanced arbitration process, SEBI has implemented a threshold for monetary disputes. Cases below the threshold will have a sole arbitrator, while cases exceeding the threshold will have a panel of arbitrators. Additionally, the new framework calls for the maintenance of a deposit in a specified account by the concerned intermediary. This deposit will be utilized for payment of awards or interim relief in case the intermediary fails to adhere to the award or refuses to pay.

One of the significant shortcomings of the old dispute resolution process was its limited coverage. It only encompassed Stockbrokers, Depository Participants, listed companies, and Registrars and Share Transfer Agents. Investors with disputes involving other registered intermediaries did not have recourse to dispute resolution under the existing framework. The new framework addresses this limitation by extending the MII-administered online conciliation and arbitration to a more comprehensive set of intermediaries.

Moreover, the new framework by SEBI includes measures to reduce timelines, introduce auto-routing of complaints, and auto-escalation of complaints if the prescribed timelines are not adhered to. This focus on timeliness demonstrates SEBI's commitment to expediting the grievance redressal process and delivering more efficient outcomes for investors.

SEBI's new dispute resolution framework represents a significant step towards strengthening the investor community in the Indian securities market. The expansion of coverage, the introduction of a hybrid approach and the focus on timeliness all contribute to creating a more investor-friendly dispute resolution ecosystem, promoting trust and confidence in the Indian capital markets. As this new framework takes root and evolves, it will lead to a robust standard for investor protection and dispute resolution in the financial sector, which will play a key role in further attracting investors to Indian markets.

Disclaimer: The opinions expressed above are personal and may not reflect the views of DSIJ. 

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