SEBI Slaps Rs16 Lakh Penalty on Stock Holding Corp -SHCIL for Non-compliance
Moneylife Digital Team 30 November 2023
Market regulator Securities and Exchange Board of India (SEBI) has imposed a fine of Rs16 lakh on Stock Holding Corp of India Ltd (SHCIL), a designated depository participant (DDP), for non-compliance with rules and regulations, thus failing in fiduciary duties.
 
In an order, Santosh Kumar Sharma, adjudicating officer (AO) of SEBI says, "I consider that the irregularities on the part of SHCIL regarding non-maintenance of records and documents, registration of ineligible foreign portfolio investors (FPIs), discrepancies in the DDP manual, non-compliance with know-your-customer (KYC) form and demat form and fit and proper check, failure on its part to segregate activities and maintain necessary infrastructure and delay in forwarding audit report on internal controls does not absolve it from penalty. The irregularities on the part of SHCIL clearly shows that it has failed in its fiduciary duties owed to its clients."
 
The market regulator inspected documents and other records of SHCIL to verify the possible violations of the provisions of SEBI FPI regulations. During the inspection, SEBI observed non-maintenance of records and documents, registration of ineligible FPIs, discrepancies in the DDP manual, non-compliance with KYC and demat forms, non-compliance with fit and proper check, and failure to segregate activities and to maintain necessary infrastructure by SHCIL. 
 
SEBI then issued a show cause notice (SCN) to the DDP. After perusing the response and documents submitted by SHCIL, the SEBI AO observed that the material available on record does not quantify any disproportionate gains or unfair advantage, if any, made by the DDP and the losses, if any, suffered by the investors due to such violations on its part. 
 
From the document available on record, the SEBI AO says it is not ascertainable whether the acts of SHCIL are repetitive in nature. "However, it is pertinent to note that the role of a DDP is crucial as it is primarily responsible for the registration and on boarding of FPIs. I find it pertinent to mention here that registration is with the objective of protecting the interests of the investors, as it casts accountability and responsibility upon the DDP to comply with all regulatory requirements applicable to the conduct of its business activity so as to promote the best interests of clients and the integrity of the market."
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