Markets regulator flags deficiencies in pledge rejection communication and disaster recovery drills; depository directed to pay penalty within 45 days
NEW DELHI, (Economy India): The Securities and Exchange Board of India (SEBI) has imposed a penalty of ₹1 crore on Central Depository Services (India) Ltd (CDSL) for multiple compliance lapses, including failures in communicating reasons for rejected pledge requests and shortcomings in disaster recovery drills.
In its 102-page adjudication order, the markets regulator said CDSL had violated several regulatory requirements during the financial year 2023-24, following an inspection of the depository’s operations.
SEBI has directed CDSL to pay the penalty within 45 days. Failure to comply with the payment direction could lead to recovery proceedings.
Pledge Request Communication Lapses
One of the key deficiencies identified by SEBI related to the handling of rejected pledge requests.
The regulator found that CDSL had failed to communicate the reasons for rejection of pledge requests to the depository participants (DPs) of both the pledgor and the pledgee.
Pledge transactions are an important part of the securities market infrastructure, allowing investors to use securities as collateral for various financial requirements.
Timely communication of rejection reasons helps depository participants understand transaction failures and take appropriate corrective action.
SEBI flagged the lapse as part of its examination of CDSL’s compliance with applicable regulatory requirements.
Shortcomings in Disaster Recovery Drills
The regulator also identified shortcomings in CDSL’s disaster recovery drills.
Depositories play a critical role in maintaining electronic records of securities and supporting the functioning of India’s capital markets. Their technology infrastructure and business continuity arrangements are therefore important for ensuring uninterrupted services.
Disaster recovery drills are designed to test an organisation’s ability to restore critical systems and operations in the event of technology failures or other disruptions.
SEBI’s order identified deficiencies in this area among the compliance issues observed during the inspection.
Violations Identified During FY2023-24 Inspection
According to the regulator’s 102-page order, the compliance violations related to CDSL’s operations during FY2023-24.
The inspection covered multiple regulatory requirements, with the regulator identifying lapses in operational processes and disaster recovery preparedness.
The ₹1 crore penalty reflects SEBI’s regulatory action against the depository for the deficiencies identified in the inspection.
CDSL Directed to Pay ₹1 Crore Within 45 Days
SEBI has instructed CDSL to deposit the penalty within 45 days.
The regulator has also stated that recovery proceedings may be initiated if the depository fails to pay the amount within the prescribed period.
The order brings attention to the importance of operational compliance, transparent transaction communication and technology resilience among market infrastructure institutions.
SEBI Action Highlights Importance of Depository Compliance
CDSL is one of India’s central securities depositories and plays an important role in the country’s securities market infrastructure.
The regulatory action underscores the need for depositories to maintain robust operational systems, follow applicable regulatory requirements and ensure effective communication with depository participants.
The deficiencies identified by SEBI relate to processes that support the smooth functioning and reliability of securities transactions and market infrastructure.
(Economy India)
