The changes in Sebi’s complaints redressal system
Jan 16, 2023
Given the level of financial literacy and awareness among Indian investors, it is necessary to publicize the new step-up approach by Sebi through various communication mediums.
The Indian securities market has witnessed profound growth in terms of knowledge, infrastructure, better practices, stock market wealth, new products and other aspects. Yet, retail investors have been categorised as a ‘pitied’ lot because of their vulnerability to being defrauded.
Investor protection is one of the crucial elements in market regulator Sebi’s preamble and accordingly several kinds of investor protection measures have been prescribed. However, investors should realize that ‘Right of redressal is a good idea but the rights come with responsibilities!’. It is in this context that one should look at the Sebi notification in November 2022: investors shall file a complaint on the Sebi Complaint Redress System (SCORES) within a year from the date of cause of action. Sebi reserves the right to reject a complaint if it has been filed after a year.
Filing of grievance within one year would certainly improve the investor’s ability to timely collect the evidence/facts/information to prove his/ her case as against filing complaints after a longer period. Further, this would help in maintaining topicality of the case and help the investor in seeking justice closer to the commission of the said violation. The time factor has often been the defeat-point for investors.
To streamline the investor grievance process, Sebi has mandated that investors should first file the complaint with the respective intermediary/listed company and then escalate it to the market infrastructure institutions (MIIs). Further, if the complaint is not redressed/rejected or if the investor is not satisfied with the outcome; they can file a complaint with Sebi. The regulator has further strengthened this mechanism by defining redressal timelines at each level, ensuring accountability of various decision makers. The step-up approach of grievance redressal would certainly result in injecting responsibility among investors. Overall, it would lead to optimum utilization of regulatory resources and result in effective redressal of investor grievances.
However, in this context, a question worth introspecting is “Whether retail investors are sufficiently ‘financial-literate’ to understand the grievance mechanism and its timelines, considering their lackadaisical approach towards investing and due diligence?’
In general, investors have been slow and averse to adopting new changes. The various extensions given by the government to link Aadhaar with PAN is testimony to this reluctant attitude. On similar lines, many investors are yet to make nominations to their trading and demat accounts and Sebi has been extending the timelines for the same since last one year.
Investors need to be vigilant when dealing in securities markets. They should ensure that their KYC details are up to date; ratify trade communications received from exchanges with contract note; register their nominee(s) in demat account; match their bank statements with dividend intimation; verify their consolidated accounts statement with their holdings of securities and give specific PoA (power of attorney) rather than a blanket PoA to their broker. The regulator expects the investor to be responsible on these aspects. They should understand and identify where they are being duped and accordingly file for timely redress of grievances.
Given the level of financial literacy and awareness among Indian investors, it is necessary to publicize the new step-up approach by Sebi through various communication mediums. Sebi’s decision to allow investor associations in facilitating filing of complaints by investors on SCORES portal is a welcome step in this direction.
The new mandate for filing complaints within a period of one year, may still take some time to be known, therefore, Sebi may take a lenient view on this until then.