Sebi looking to revamp investor grievance redressal process

Capital markets regulator Sebi on Friday came out with a proposal to strengthen the investor grievance handling process through the SCORES system and integrate the same with the online dispute resolution mechanism.

In addition, the regulator is looking to review the qualified institutional buyer (QIB) status of alternative investment funds (AIFs), venture capital funds (VCFs) and foreign venture capital investors (FVCIs).

The Securities and Exchange Board of India (Sebi) has sought comments from public on the proposals pertaining to QIB status by June 1 and investor grievance mechanism by June 3, according to two separate consultation papers.

Under the proposal, the regulator has suggested to revamp the investor grievance handling mechanism through SEBI Complaint Redressal System (SCORES) and integrate the same with the online dispute resolution (ODR) mechanism which was recently approved by Sebi.

SCORES was launched in June 2011 to enable investors to lodge and follow up their complaints and track the status of redressal of such complaints.

This proposal is aimed at making the entire redressal process of grievances in the securities market comprehensive by providing an end-to-end solution. It also aims at making the process more efficient and faster by reducing timelines and introduction of auto-routing and auto-escalation.

Also, the proposal provides for two levels of review that the investor can opt for, plus the option for referral to the ODR mechanism.

Further, complaints pertaining to market price manipulation, insider trading, accounting manipulation by listed companies that are currently being auto-closed will be excluded from the SCORES platform as these cannot be treated as complaints and a separate portal for market intelligence will be created for this purpose.

In case, investors lodges complaints in nature of market intelligence on SCORES, such type of complaints would be closed and routed to market intelligence portal, Sebi said.

With regard to proposal pertaining to QIBs, Sebi suggested that AIFs and VCFs, other than those having 50 per cent or more contribution from a single investor or investors belonging to the same group should be considered QIBs.

Further, the regulator proposed that FVCIs, other than those FVCIs who are corporate bodies and family offices should be designated as QIBs.

While VCFs are dedicated pool of capital, which raise capital and invest in a manner as specified in the rules, AIFs are pooled investment vehicles which collect funds from investors for investing it in accordance with a defined investment policy for the benefit of its investors.

AIF rules specify that no scheme of AIF will have more than 1,000 investors.

Sebi observed that certain AIFs, which have very few investors and belonging to same investor group, have invested in IPOs under QIBs quota, thereby circumventing norms pertaining to QIBs.

As on March 2023, 318 schemes of AIFs had five or less investors, out of which 210 schemes have either had one or two investors. Further, it is also possible that these investors belong to the same group, Sebi noted.

Thus, entities which may not be otherwise eligible to qualify as QIBs on their own, may avail the flexibility provided to QIBs by setting up an AIF for the said purpose.

Similar concerns are also present in case of designation of FVCIs as QIBs.

It was noted that Foreign Portfolio Investors (FPIs) who are individuals, corporate bodies and family offices are not designated as QIBs, so that the flexibility available to QIBs are not available to such entities.

However, similar exclusion has not been provided in case of FVCIs. It is important to note that individuals are not eligible to register as FVCIs.