The Securities and Exchange Board of India (SEBI) is the primary regulatory authority for merchant banking services in India. SEBI has issued various regulations and guidelines to ensure that merchant bankers comply with certain standards and norms while providing services to their clients. Here are some of the SEBI regulations on merchant banking in India:
- Registration: Any entity that wishes to provide merchant banking services in India must obtain registration with SEBI. The registration process involves submitting an application in the prescribed format, along with the relevant documents and fees. SEBI will then assess the eligibility of the applicant and grant registration if it meets the prescribed criteria.
- Code of conduct: SEBI has prescribed a code of conduct for merchant bankers, which includes guidelines on issues such as conflict of interest, confidentiality, and disclosure of information. Merchant bankers must adhere to this code of conduct at all times.
- Capital adequacy: SEBI has prescribed minimum capital adequacy requirements for merchant bankers. The merchant banker must maintain a minimum net worth of Rs. 1 crore, which must be kept in the form of cash or bank deposits.
- Due diligence: Merchant bankers are required to conduct due diligence on their clients before taking on any assignment. This includes conducting a detailed analysis of the client’s financial and business operations, as well as assessing the risks involved.
- Disclosure requirements: SEBI has prescribed various disclosure requirements for merchant bankers. For example, merchant bankers must disclose their fees and charges, as well as any conflicts of interest that may arise in relation to a particular assignment.
- Record-keeping: Merchant bankers are required to maintain detailed records of all their transactions and activities. These records must be preserved for a minimum of five years.
- Role in public offerings: Merchant bankers play a critical role in public offerings of securities. SEBI has prescribed guidelines on the role of merchant bankers in public offerings, including their responsibilities in relation to due diligence, disclosure, and pricing of the securities.
SEBI regularly monitors the activities of merchant bankers to ensure compliance with these regulations and guidelines. Non-compliance can result in penalties, including fines, suspension of registration, or even cancellation of registration.