SEBI Board Meeting: Stricter Norms For Merchant Bankers, Restrictions On Non-Permitted Tasks And More
SEBI's latest regulations will require merchant bankers to separate non-permitted activities into distinct legal entities within two years and operate under a different brand.
The Securities and Exchange Board of India's board on Wednesday has approved stricter norms for merchant bankers. The revised rules introduce restrictions on non-permitted tasks, valuation services, and other operational areas.
Under the new regulations, merchant bankers, excluding banks and public financial institutions, are now required to limit their activities to those specified as permitted by SEBI, according to a statement released by the markets' regulator's board late on Wednesday after its board meeting. Non-permitted activities must be spun off into separate legal entities within two years.
These entities will need to operate under a different brand name and adhere to SEBI's code of conduct. Additionally, MBs must maintain a liquid net worth of at least 25% of their total net worth at all times.
The regulations also bring restrictions on the valuation activities that MBs can undertake. While MBs may continue with any existing valuation assignments, they will no longer be permitted to engage in fresh valuation activities under their MB registration. To take on such activities in the future, MBs will need to obtain a separate registration from the appropriate regulator within a period of nine months.
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The amendments also introduce two categories of MBs based on net worth. Category 1 MBs, with a net worth of at least Rs. 50 crore, can undertake all permitted activities, while Category 2 MBs, with a minimum net worth of Rs. 10 crore, are restricted from managing equity issues on the main board.
Both categories are required to meet specific revenue thresholds, with Category 1 MBs needing Rs. 25 crore over the last three years and Category 2 MBs needing Rs. 5 crore. MBs involved only in debt or hybrid securities are exempt from these revenue criteria.
Furthermore, the underwriting limit for MBs has been capped at 20 times their liquid net worth.
The new rules also prohibit MBs from leading any public issue if their directors, key managerial personnel, compliance officers, or employees (or their relatives) hold more than 0.1% of the paid-up capital of the issuer, or shares worth Rs. 10 lakh, whichever is lower. In such cases, the MB can still be appointed but only for marketing the issue, provided appropriate disclosures are made.
Lastly, the regulations specify the minimum qualifications for compliance officers, who must now be either a Company Secretary or hold a degree in law, with at least two years of post-qualification work experience. Existing officers may continue in their roles if they have five years of experience and have obtained the certifications from the National Institute of Securities Markets.
