Gross Violation but Karvy's PMS Registration Certificate Suspended for Only 1 Month & No Penalty Levied

Moneylife Digital Team 09 December 2022

Investor Interest

Market regulator Securities and Exchange Board of India (SEBI) has suspended the portfolio management services (PMS) registration certificate of Karvy Stock Broking Ltd (KSBL) for just one month, despite widespread violations of the portfolio manager regulations. In fact, even after finding gross violations, the market regulator has not levied any penalty on the brokerage.

In an order, Dr Anitha Anoop, chief general manager of SEBI says, "KSBL has contended that violations are technical and had no impact whatsoever on their clients' interests in any manner. I find that there are multiple violations of the portfolio manager regulations and the same have been established in the proceeding paragraphs. The said violations have even been admitted by KSBL...I find that suspension for a period of one month will suffice in the facts and circumstances of the case."

KSBL contended that, since November 2019, it has not had active operations and is in the process of surrendering its certificate of registration as a portfolio manager. However, SEBI says, "KSBL being a registered intermediary, is required to comply with the various circulars, rules and regulations in place during the tenure of its registration. The very purpose of the said provisions is to deter the wrongdoing and promote ethical conduct in the securities market."

The market regulator inspected KSBL from 1 April 2018 to 31 March 2019. It found nine violations committed by the broker. This includes failing to appoint an appropriately qualified or experienced principal and compliance officer. The brokerage also failed to provide certain details in the disclosure document by not providing details of penalties, pending litigation or proceedings, findings of inspection or investigations.

Further, SEBI says KSBL had mentioned a contrary provision in its disclosure document and also failed to maintain uniformity in the condition of the notice period mentioned in the model portfolio agreement regarding the termination of agreements with clients.

KSBL kept open positions in respect of allocation of purchases of securities effected in a day and did not rectify the discrepancies in the auditor’s report, SEBI says.

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