In 2023-24, the Securities and Exchange Board of India (SEBI) initiated a pilot project to improve regulatory compliance by recognizing Industry Standards Forums (ISFs). This initiative aims to streamline the implementation of SEBI’s regulatory directions across a range of entities, such as Market Infrastructure Institutions (MIIs), mutual funds, listed companies, intermediaries, and investment advisors. By providing a structured and standardized approach to compliance, this system is designed to simplify processes for industry participants and ensure that regulatory directions are followed effectively.
The Need for Industry Standards Forums (ISFs)
SEBI, as the regulator of India’s securities markets, frequently issues regulatory directions through regulations, circulars, or other mechanisms. These guidelines are meant to ensure that market participants maintain high standards of transparency, ethics, and operational efficiency. However, for such directions to be effectively implemented, it is essential that there is a clear and practical framework in place that industry participants can easily follow.
This is where ISFs come in. ISFs serve as platforms for formulating standards that ensure the seamless implementation of SEBI’s regulatory directions. They are designed to be aligned with the specific needs of various regulated entities, recognizing that each type of entity—whether it is an MII, mutual fund, listed company, or stockbroker—has its own unique operational characteristics. By bringing together experts from within the industry, these forums aim to set actionable and precise standards that will facilitate compliance.
How the Industry Standards Recognition Process Works
The recognition of industry standards by SEBI is a formal process guided by specific principles and criteria. These guidelines, now published by SEBI, outline the steps required for a standard to be recognized. One of the critical goals of these standards is to provide a consistent and uniform approach for compliance, which can be adopted across various market segments. Importantly, these standards will not serve as prerequisites for the regulatory directions to become effective but will act as tools for ensuring ease of compliance once the directions are implemented.
Additionally, SEBI may adjust these guidelines or offer exemptions based on exceptional circumstances or unique needs of specific ISFs. This flexibility ensures that the framework remains adaptable to the dynamic nature of the financial markets.
The Scope of Industry Standards Forums
ISFs are tasked with formulating standards to aid in the implementation of SEBI’s regulatory directions. These standards must align closely with SEBI’s regulatory intent and include specific checklists or Standard Operating Procedures (SOPs) to help industry participants understand and comply with the regulations.
However, it is essential to note that the scope of an ISF does not extend to the creation of new regulations or circulars. If an ISF identifies significant challenges in implementing existing regulatory directions, it may bring these challenges to SEBI’s attention and suggest necessary changes. Nonetheless, ISFs do not have the power to enforce regulations or impose penalties on participants for non-compliance.
The Process of Adoption and Recognition of Industry Standards
The process for adopting standards for implementation involves several key criteria. First and foremost, the standards must align with SEBI’s regulatory intent. Additionally, they must be specific, clear, and devoid of any ambiguity, ensuring that they are easy to understand and apply. The standards should also include a step-by-step procedure for implementation, allowing industry participants to follow a standardized process that guarantees compliance.
Moreover, SEBI requires that the reporting of regulatory directions be done in a standardized format. The ISF will provide the appropriate reporting formats to help entities meet these requirements efficiently.
