SEBI mulls norms to reward whistle-blowers

It seeks protection of informant from victimisation

The Securities and Exchange Board of India (SEBI) has proposed establishing a framework to reward individuals who bring forward instances of violations of insider trading norms while at the same time protecting such persons from victimisation in the form of demotion or termination of job.

“… it is desirable and prudent that SEBI considers instituting a process that enables timely reporting of instances of insider trading violations and also provide for grant of reward with adequate checks and balances that could incentivise timely reporting of information relating to insider trading to SEBI at the first available opportunity,” stated the discussion paper released by SEBI on Monday.

The capital markets regulator has proposed that entities that come forward with such information will have to disclose the source of information and give an undertaking that such information has not been sourced from any regulator.

Further, the regulator has proposed that if such information leads to a final order by SEBI with a minimum disgorgement of ₹5 crore, then a monetary award of 10% of the money collected by SEBI, subject to a cap of ₹1 crore, can be given to the informant.

Further, the reward will be paid from the Investor Protection and Education Fund (IPEF). SEBI also plans to establish an Office of Informant Protection, which will be independent of the investigation and inspection wings of the regulatory body.

Anonymous complaint

While the informant would be required to disclose his or her identity at the time of submission of the complaint in the official format – Voluntary Information Disclosure Form, in SEBI’s parlance – an anonymous complaint can also be submitted through an authorised representative who is a practising advocate.

To protect such complainants against victimisation, the regulator has proposed that all listed companies and intermediaries would include in their code of conduct, provisions to ensure that such individuals are not “discharged, terminated, demoted, suspended, threatened, harassed, or discriminated against, directly or indirectly.”

While SEBI has also proposed an amnesty for such individuals, it has also stated that if a complaint is found to be frivolous, the regulator can initiate actions against the informant.

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