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For investor protection, Sebi tightens money pooling scheme norms

The new regulations — pertaining to three areas — also facilitate refund to small investors who suffer losses due to irregularities in the market.

For collective investment schemes (CIS), it would be compulsory for all transactions to be conducted through cheque, draft or other banking channels, and not in cash. Apart from making the fund-raising activities of CIS more transparent, the move would make it easier to identify the real investors involved in such schemes. In recent times, many cases of investors getting duped by fraudulent money pooling schemes have come to light.

For starting a CIS, a person needs to make an application for registration as Collective Investment Management Company. This set of new norms is called the Securities and Exchange Board of India (CIS) (Amendment) Regulations, 2014. These rules are related to an ordinance — promulgated for the second time in September — that provides for regulation of pooling of funds under any scheme or arrangement, involving a corpus of Rs 100 crore or more, and are deemed to be a CIS.

Further, a stricter set of settlement norms has been notified. Entities charged with committing serious offences like illegal money pooling, insider trading and fraudulent trades would not be able to settle them any more. The new regulations have been notified with retrospective effect from April 20, 2007, the day when Sebi’s existing consent settlement system was introduced.

These norms under Sebi (Settlement of Administrative and Civil Proceedings) Regulations, 2014 also provide for guiding factors for dealing with the settlement process, while serious offences such as insider trading are excluded from the scope of settlement. To help aggrieved investors, Sebi has notified new rules that allow it to utilise the Investor Protection and Education Fund to refund their money.
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