SEBI asks MFs/capital market to form committees to oversee implementation of regulations

SEBI has asked capital market players including mutual funds, AIFs and PMSs to form their respective committees called Industry Standards Forums (ISFs) to implement SEBI regulation effectively.

With this, the market regulator aims to bring uniformity and ease of compliance.

Here are some key details of ISF regulations:

Scope of ISF

• ISF will formulate standards for implementation of various regulatory directions in consultation with SEBI
• The standards set by ISF will have to be aligned with the regulatory intent and will include specifics/checklists/Standard Operating Procedures (SOPs) to assist the industry
• ISF will not apply to draft regulations or circulars or in suggesting changes to existing regulations or circulars. However, in exceptional cases where there are significant challenges to the implementation of a regulatory direction, ISF can suggest some changes to the regulatory direction to SEBI
• ISF will be organized as a committee and will not be able to take regulatory action for non-compliance on its own
• ISF will not have any enforceable rights against SEBI

Constitution of the ISF

• The constitution of ISF will be in form of a committee which will include members of the concerned industry or regulated entities with representation from all segments of the entities which are required to comply with the regulations
• There will be 7 to 15 members in each ISF including representations of Market Infrastructure Institutions (MIIs)
• If any industry/regulated entities have existing industry associations with more than one third of the total regulated entities of that type as its members, they will have to be represented in the ISF. If there are no such associations, then top three associations with largest number of members will be considered as representative associations
• A regulated entity can be a member of multiple industry associations for the purpose of recognition of the industry associations

Appointment of members and chairperson

• The chairperson of ISF should have a minimum 10 years’ experience in the relevant industry and will be nominated by industry consensus and selected by ISF members through voting
• If an industry has multiple industry associations, each association can have only one vote towards the selection of the chairperson
• The chairperson will serve for a period of three years. However, if there is no consensus or majority on the selection of the chairperson, the position can be rotated on a yearly basis among representatives of relevant stakeholders
• The overall tenure of the chairperson of ISF cannot exceed 10 years
• ISF will be based in Mumbai and will have its own secretariat and will have qualified persons as staff deputed by participating entities
• In case of a vacant chairperson position for any reason besides term expiry, resignation, demise etc. ISF will appoint another chairperson within one month. In case of expiry of the term, the present chairperson can continue until another appointment is made
• ISF can appoint a maximum of three vice-chairpersons and will be selected by votes of the members
• Members can be current practitioners nominated by the industry association, concerned MIIs, any member of a regulated entity who is nominated by any industry association or any industry consultant, legal adviser or regulatory adviser
• Any person facing regulatory action or has faced regulatory action cannot become an ISF member till two years of completion of the matter
• ISF members can serve for a period of 2-3 years and can be reappointed for a period of 2 years after which they can become a member again following a cooling period
• At least 75% of the members of ISF will have to be practitioners of the regulations in their organizations. The remaining 25% can be industry consultants, legal advisers or regulatory advisors
• ISF will reconstitute at least one-third of the members every year to ensure that the terms of all members do not expire simultaneously
• SEBI officers cannot be members of the ISF
• If any special perspective is required for a regulation, the respective expert can be invited by ISF
• ISF will appoint one of its members as the point of contact with SEBI. This members will be called sherpa

Functioning of the ISF

• ISF will be required to consult with SEBI for identifying a regulation to prepare implementation standards
• The committee can meet as many times as is required to ensure formulation of standards in a timely manner
• ISF will seek comments from all its members to formulate the implementation standards. It can take assistance from representatives of the industry associations to get comments from the members
• ISF can set up separate working groups to work on specific regulations for which implementation standards need to be developed
• If the ISF cannot reach a consensus on a regulation, it can submit various proposals to SEBI with their merits and demerits
• The implementation standards can be formulated by ISF within three months of taking up the task
• ISF will maintain its records under supervision of the secretariat, preferably in the digital form for eight years
• ISF will submit regular periodic reports to SEBI in specified format

These regulations will become applicable to pilot ISFs within 6 months. For every other entity, these regulations will come into effect immediately.