SEBI Eases Penalty Guidelines, Targeting MIIs Instead Of Individual Executives For Tech Failures

In a move to ease penalties for technical glitches, SEBI announced on Friday that financial penalties will now be imposed solely on market infrastructure institutions instead of their managing directors or chief technology officers.

Additionally, MIIs—such as stock exchanges, clearing corporations, and depositories—will have the opportunity to explain the reasons behind any technical issues before penalties are applied, according to SEBI's circular.

Previously, MIIs and their MDs and CTOs faced automatic financial penalties for technical glitches if certain criteria were not met. This new framework was introduced following recommendations from various committees and MIIs aimed at promoting a smoother business environment for these institutions.

SEBI highlighted that the operations of MIIs are increasingly system-driven, relying on a complex array of IT systems, both software and hardware, which depend on various vendors and service providers.

"Further, the test for ascertaining any individual responsibility for a technical glitch would entail ascertaining if there has been any act of omission/commission, including if an MD/CTO did or did not ensure adequate oversight/resources/checks and balances to prevent such glitch reasonably and by definition such a test would require application of mind and assessment,' SEBI added.

In its circular, the regulator said, "It has been decided to restrict the imposition of existing financial disincentives to MIIs only."

Also, MIIs are required to submit a report within 90 days of any disruption, detailing the financial penalties paid. Also, they are required to disclose this information on their websites, annual reports and to investors if listed.

MIIs must investigate technical glitches to determine if any individual is responsible and take appropriate actions. Further, Sebi reserves the right to take further action against individuals if necessary.

The new framework is to come into effect immediately.

(With Inputs From PTI)