Sebi drops ombudsman concept for securities market

MUMBAI: The Securities and Exchange Board of India (Sebi) has done away with the concept of ombudsman for the securities market because of legal issues.

The regulator said it does not have the power to adjudge dispute between entities.


“Sebi Act does not expressly empower the Board to award compensation and therefore, Sebi may not empower an ombudsman to award compensation through delegated legislation,” Sebi said in an internal note to its board.

The regulator said as per rules, the ombudsman need not be a judicial authority. Therefore, it is doubtful as to whether such a non-judicial authority would be entitled to award compensation.

Besides, the ombudsman regulations provide for imposing penalties on a company or an intermediary if found guilty upon adjudication of the complaint by the ombudsman. But, rules do not provide for an enforcement mechanism to execute the orders of the ombudsman.

In the early 2000’s, the arbitration mechanism of stock exchanges to address investor complaints was plagued with inordinate delays. Passing of an award did not ensure implementation of the same by the brokers. A high arbitration fee and lack of proper appeal mechanism added to the woes of investors.

In this scenario, the Joint Parliamentary Committee (JPC) on the stock market scam and matters relating to it had emphasized the need to have an independent view on the resolution mechanism of investor complaints against companies and market intermediaries.

JPC had recommended that the concept of Ombudsman, which was being used in the banking sector, be extended to the capital market.

“It was, however, of the opinion that ultimately Special Courts dealing exclusively with the investor complaints of the financial sector would be the real solution to the expeditious disposal of complaints,” Sebi said.

“It was, therefore, felt that the Ombudsman Regulations cannot be operationalised under the extant legal framework,” Sebi said. Hence, the Ombudsman regulations are being repealed.