SEBI

Guidelines on Appointment of Compliance Officers: NSE

The National Stock Exchange of India^[1] (NSE) issued a circular on 25^th November 2022 stating the guidelines pertaining to the appointment of compliance officers for all the registered members of the Stock Exchange. These guidelines reflect upon the appointment, eligibility and tenure of the compliance officer that is to be appointed by the members. As per regulation 18 A of the SEBI(Stockbroker) Regulations, 1992, all the members registered with the Exchange are mandatorily required to appoint a compliance officer. The officer shall monitor the compliance relating to the notifications, Acts, Rules and Regulations, instructions, circulars etc., issued by the regulatory authority or the Central Government or exchanges for redressal of investor grievances. These broad guidelines that cover the eligibility, tenure and continued sustainability of the Compliance Officer framework will be effective from 1^st December 2022. This blog aims to demystify all the requirements and points put forth by the regulatory authority for the appointment of Compliance Officers.

Who is a Compliance Officer?

As per the SEBI (Prohibition of Insider Trading) Regulations, 2015, a compliance officer could be any designated senior officer and report to the Board of Directors. Companies whose securities are listed on the stock exchanges and every market intermediary registered with the SEBI has to have a compliance officer for the following functions:

1. Coordination with recognized stock exchanges
2. Compliance with all the rules, regulations and directives of the SEBI
3. Monitoring all the emails received in the grievance redressal department of the company
4. Maintaining all the procedures to check the authenticity of the data that is filed with the SEBI
5. Administering the code of conduct and Market trading of the employees of the company 

The compliance officer may be an employee and advisor to the company’s board of directors. Still, it is essential to mention that the compliance officer must perform their duty towards the company independently from the Board of Directors.

In the infamous matter of Satyam Computer Services Private Limited. The SEBI was of the opinion that the role of a compliance officer is paramount in monitoring and adherence to SEBI regulations by their parent organizations. The compliance officer cannot make the contention that he didn’t have internal approvals for highlighting any risk, noncompliance or illegal activity as if this contention is approved. The appointment of compliance officers in the company is meaningless.

Eligibility Criteria

The criteria for the appointment of Compliance Officers are as follows:

Educational Qualification:

The minimum educational requirement for an individual to be appointed as a Compliance Officer is Graduation from Government recognized institution. Although having a Post-Graduation or PHD is considered an additional benefit during the selection procedure. All the existing Compliance Officers of Members o record of tee changes who possess an experience of more than 2 years stand exempted from the above-mentioned requirement.

Experience:

At the appointment time, the individual must possess at least 2 years of work experience in Banking or Financial Services, handling Finance/ Audit/ Compliance/ Operations/ Legal/ Risk Management Functions. This is an essential requirement as the individual must have the Woking knowledge of all an organisation’s internal and external functions.

Skill Set Required:

Following is the skill set required by the individual to apply for the role of Compliance Officer

1. Understanding of the securities market
2. Risk Management
3. Good working knowledge of all the processes and procedures involved in a Company
4. Good understanding of the Legal Framework
5. Management of Regulatory Expectations and their delivery

Certification Requirement for appointment of Compliance Officers

Following are the minimum certification required for the appointment of Compliance Officers in the Company.

1. The individual must pass the NISM-Series-III A: Securities Intermediaries Companies (Non-Fund) Certification Examination within 1 year from the date of employment in terms of SEBI notification. The Compliance officer has to ensure that the certification is renewed before the completion of its validity.
2. The compliance officer is expected to be well informed and up to date with various legislation and amendments in the rules and regulations. Members have to impart half-yearly training to all the compliance officers so that they are well-versed with all the latest amendments and regulations enacted by the regulatory authority.

Tenure of the Compliance Officer

1. The members shall ensure that the removal/transfer of the compliance officer shall be performed in a prescribed manner and after explicit prior approval of the board. The removal or transfer shall be done in a well-defined transparent internal administrative procedure and shall be recorded in writing.
2. In case any compliance officer changes due to unforeseen and uncontrollable circumstances such as death or resignation, the member have to notify the Exchange within 7 days of such change. In case of resignation, the post of the Compliance officer in the company shall be filed within 3 months of such resignation/ death and notify the same to the Exchange.
3. The post of Compliance officers seat shall not remain vacant for more than 15 Calendar days; in case of death or resignation, an interim compliance officer must be appointed until the Company appoints the regular Compliance Officer.

Due Diligence Requirements

The appointment of Compliance Officers shall be in consonance with the term fit and proper as per Schedule II of SEBI intermediaries Regulations, 2008. The methodology for determining whether the applicant is fit and proper on the basis of following pointers;

1. Character, Reputation and integrity of the person
2. There should no restraining orders or convictions against the individual
3. The Competence of the individual should be perfect including financial solvency and net worth (for intermediaries)

Familiarization Programme  

The members have a statutory duty to provide half-yearly trainings to the Compliance Officers, including the newly appointed officials, which would be mandatory in nature. The individuals who have served as a Compliance Officer for more than a year and have joined any other member in the same capacity shall be excluded from the program.

The Content for training may consist of the following;

1. Trading Compliance
2. Clearing and settlement process and compliance
3. Inspections
4. Compliance related to membership
5. Investor Grievance Redressal mechanism
6. Surveillance related to compliance requirements

Authority of Compliance officers

It is essential that the Compliance Officers’ duties and powers are defined expressly to refrain from any disputes regarding the same.

The CO shall be able to exercise judgement in all matters of compliance and regulations independently. They should have the freedom and sufficient authority to interact directly with regulators and supervisors to ensure compliance. He should have the means to communicate with the company’s staff members to get access to any files he may require for carrying out his job with respect to compliance requirements.

It is to be ensured that the Compliance Officer of the member’s business shall refrain from engaging in any dual responsibility by the member. Their office shall not be aligned with any responsibility that might hinder their primary compliance officer responsibilities. The appointment of compliance officers shall not be in any manner aligned with the sales or business development department. The existing compliance officers are given time till 31^st March 2023 to comply with the requirements of this section.

No allotment of trading terminals

The members have to ascertain that no trading terminal is allotted to the office of the Compliance Officer, including all his staff members. The trading terminals, if allotted, shall only be on view only basis no trades shall be executed from such terminals. These can be allotted for monitoring/testing and risk management purposes.   

Action by Exchange

The Exchange has the right on the following matters:

1. Seeking necessary explanations from the Compliance officer
2. Recording and Producing statements for the matte of enquiry
3. Initiating suitable action against the Compliance Officer, which may include debarment or removal, in case any discrepancy is found on the part of the official.

A reasonable opportunity will be provided to the Compliance Officer for his representation before finalizing the debarment or removal.

Conclusion

To possess a robust compliance and management system, Members of the Exchange shall have an effective compliance culture and a strong risk management programme. The appointment of Compliance Officers is thus important in facilitating and promoting strong regulatory practices such as investor protection, market integrity and risk management. Hence it is important that the appointment of Compliance officers should be made in a manner that covers all the prospects to ensure that the members’ functions comply with the latest norms and regulations.

Read Our Article: Compliance Function and Role of Chief Compliance Officer CCO in NBFCs