Listed companies to disclose specific details on frauds

Listed companies will soon have to provide specific details of any fraud, including its financial impact, by its executives as part of stringent disclosure norms finalised by capital markets regulator Sebi.

These elaborate disclosure norms would help curb selective leak of market-sensitive information related to listed companies besides protecting investor interest.
Sebi board has approved changes to disclosure norms as part of efforts to make them stronger.

Under the new norms, companies would have to make disclosures at the time of an occurrence of a fraud, default or an arrest of a Key Managerial Personnel (KMP).
The companies would be required to inform the stock exchanges about the nature of fraud or default or arrest.

Besides, the companies are expected to inform about the estimated impact of the fraud, time of occurrence, persons involved, estimated amount involved and whether the incident has been reported to the appropriate authorities.

Subsequently, the company would have to intimate the stock exchanges about further details regarding the fraud, including actual amount involved, actual impact of such incident on its financials and corrective measures taken on account of such default.

These are part of the indicative list of events wherein listed companies would be required to make adequate disclosures.

The norms were proposed by Sebi through a discussion paper in August last year and take into account suggestions made by the regulator's Primary Market Advisory Committee (PMAC).

According to PMAC, frauds or borrowing defaults by KMP would affect the day-to-day operation and performance of the listed entity, hence, disclosure shall be made for all frauds by such individuals.

For other employees, the committee had recommended that disclosure should be made for only 'material frauds'.
The new disclosure requirements would bring India at par with many developed markets.

Sebi has decided to tighten its corporate disclosure norms for listed companies, including by asking them to disclose board decisions within 30 minutes and details of other 'material' developments within 24 hours.

The new norms also provide for stricter penal actions for non-compliance.
The regulator said it has reviewed the requirements pertaining to disclosures being made by the listed entities on a continuous basis with a view to enable the investors to make well-informed investment decisions.