Sebi imposes ₹5 crore penalty on BSE arm ICCL for regulatory lapses | Stock Market News

In a significant regulatory move, the Securities and Exchange Board of India (Sebi) slapped a penalty of ₹5.05 crore on the Indian Clearing Corporation Ltd. (ICCL), a subsidiary of BSE Ltd, following an inspection that revealed several instances of non-compliance concerning the clearing corporation’s practices and systems.

One of the major lapses identified was ICCL’s failure to maintain an up-to-date and accurate inventory of its critical IT assets. Specifically, the centralized inventory was found to be incomplete, lacking details on software assets, and missing crucial information about the criticality of these assets.

The inspection also revealed that ICCL had not fully complied with Sebi’s cyber security framework, particularly failing to close audit observations in a timely manner. Certain audit findings remained unresolved for over six months, violating the stipulated time-bound closure requirement.

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The inspection, which covered the period from December 2022 to July 2023, was conducted to ensure that ICCL adhered to Sebi rules, regulations, and circulars, including those related to cyber security, asset management, and disaster recovery.

The review, conducted in line with Sebi’s mandate, identified multiple violations of the Sebi Act, 1992, and the Securities Contracts (Regulation) Act, 1956 (SCRA), as well as the Securities Contracts (Regulation) (Stock Exchange and Clearing Corporations) Regulations, 2018 (SECC).

Moreover, ICCL was found to have fallen short in maintaining a one-to-one correspondence between the assets at its Disaster Recovery Site (DRS) and its Primary Data Centre (PDC). This is a fundamental requirement for ensuring business continuity in the event of a disaster.

Sebi Crackdown

Sebi’s circular mandates that the systems at these two locations should mirror each other to guarantee an uninterrupted functioning of operations, a stipulation ICCL failed to meet.

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ICCL, in its defence, argued that the violations were of a technical nature and did not result in harm to investors or any financial gain to the corporation. The clearing corporation insisted that corrective actions had already been taken, including updating the asset inventory and addressing the audit findings. It further contended that some of the alleged lapses were mere discrepancies, such as minor variations in server specifications, which did not impact performance.

The corporation also emphasized that the violations did not stem from deliberate wrongdoing, but were inadvertent oversights. ICCL maintained that penalties should not be imposed for such technical lapses, citing legal precedents where penalties were avoided for minor, unintentional breaches that did not result in harm.

Despite ICCL’s explanations and corrective measures, Sebi found the violations to be serious, particularly given the importance of the clearing corporation’s role in the financial market. According to Sebi, the lapses undermined the integrity and security of the systems that are crucial for market operations.

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As a result, Sebi imposed a total monetary penalty of ₹5.05 crore on ICCL. The fine includes ₹5 lakh under Section 15HB of the Sebi Act and ₹5 crore under Section 23GA of the SCRA. ICCL is required to pay the penalty within 45 days of receiving the order.