Key takeaways from the March 2023 SEBI Board Meet

SEBI Board held the concluding meet for FY23 on 29th March 2023. There were a number of expectations even ahead of the Board meeting, especially with regard to ESG regulations, ASBA in secondary markets, tighter regulation of mutual funds etc. the SEBI board meeting announced all this and a little more in its last meeting of the fiscal year FY23. Broadly, there are 10 key announcements that were made by SEBI in its March 2023 board meeting.
Significant announcements in March 2023 SEBI Board meet

Here is a quick compilation of the 10 most important decisions taken and communicated by SEBI in its 20th March 2023 board meeting.

1)    Environment, social, governance (ESG) has been growing in importance and there were some important announcements in this regard. For instance, SEBI announced the introduction of a Business Responsibility and Sustainability Report (BRSR) Core. This BRSR Core will include Key Performance Indicators (KPIs) for listed entities above a certain threshold size. In a slight extension of the responsibility, SEBI has mandated that significantly large (top 250) listed entities must also make ESG disclosures for the complete value chain that the company is operating in. 

2)    SEBI will put out a detailed framework for ESG ratings with closer monitoring. Rating agencies have been asked to factor in unique issues pertaining to EMs to make the ESG ratings more meaningful. In addition, SEBI has also mandated that mutual funds that go by the name of ESG fund schemes will have to mandatorily invest 65% or more of their AUM in listed entities where BRSR Core is undertaken. Boards have also been asked to make a wider disclosure of voting patterns on ESG issues. 

3)    The topic of ASBA in secondary markets has been close to the SEBI picture of the emerging market order. It would be safe, secure, and fair to the investors. In its March 2023 board meeting, SEBI approved the ASBA framework for secondary markets. ASBA is already mandatory in IPOs, but extending it to secondary markets will make it the benchmark for all capital market transactions. Going ahead, there will be no need for transfer of funds to brokers and everything will work on the ASBA logic of blocking funds and automatically releasing them. 

4)    In a related development, SEBI also announced the upstreaming of client funds; such that the funds with the broker are automatically sent upstream to the clearing corporation. That is better than leaving funds with the intermediary as it carries credit risk However, this would not apply to Bank CMs (Clearing Members) and they would not be required to upstream funds to the clearing corporations.

5)    Fraud identification and prevention has bene a major challenge for brokers, considering the sensitivity of information that is in custody. To overcome that, SEBI has approved a framework for an institutional mechanism to detect and prevent fraud or market abuse, that interferes with the market integrity. SEBI Stock Broker Regulations will, therefore, be amended to include surveillance systems, internal controls at broker outfits, delineation of obligations of brokers and employees, escalation matrix as well as a well-articulated whistle blower policy.

6)    The SEBI board meet has also dwelt on regulating the index providers, which is essential considering that the passive fund AUM is growing rapidly and has already crossed Rs8 trillion for index funds and index ETFs alone. SEBI has approved a framework to regulate index providers in such a way as to foster transparency and accountability in the index selection, creation, modification and monitoring process. 

7)    The meeting will set up a full-fledged AIF-model corporate debt market development fund (CDMDF) as a backstop facility. In the event of any crisis in the debt markets (we have seen many of these recently), this will instil confidence in debt market players. The debt funds and income funds are expected to provide the corpus for this debt market development fund, as they would also be the biggest beneficiaries of this facility. 

8)    The latest board meet dwelt at length on the roles of AMC boards and AMC trustees. These have come into question in the light of the Templeton fiasco in 2020, especially the role of trustees. The first step would be to identify areas that will need the independent evaluation and due diligence by the trustees of the fund. However, the SEBI board meet has made it clear that the responsibility to protect the interests of unit holders will rest on the AMC board. The SEBI board has also widened the definition of sponsor of mutual fund to include PE funds in the eligible list to float mutual funds in India. Even self-sponsored mutual funds will be permitted.

9)    SEBI board meeting also dwelt at length on the issue of improving transparency through quick dissemination of relevant information to shareholders. This will prevent asymmetry of information wherein a handful of privileged are able to gain from confidential data. Hence, SEBI proposed that key material events be disclosed by the company without too much of a time lag and, in such cases, the materiality principle can be applied based on quantitative threshold. Board meeting decisions must be communicated within 30 minutes of the conclusion of the meeting and other items in 12 hours. IN addition, the top 250 companies will have to either verify and confirm or deny any market rumour pertaining to the company. 

10)    In addition, the SEBI board meet has also made announcements to enhance transparency, ensure greater governance and also ensure that relevant information reaches the shareholders without delay.