Description
SEBI imposes penalty on Finshore Management Services Limited (Merchant Banker) for violations of ICDR Regulations and Merchant Banker Code of Conduct during inspection period April 2021 to April 2023.
Summary
SEBI issued an adjudication order against Finshore Management Services Limited (Registration No: INM000012185), a registered Merchant Banker, for violations of SEBI (ICDR) Regulations, 2018 and SEBI (Merchant Bankers) Regulations, 1992. The violations were identified during a comprehensive inspection conducted at the Noticee’s Kolkata office on May 25-26, 2023, covering the period from April 1, 2021 to April 30, 2023. The inspection assessed due diligence exercised by the Merchant Banker in respect of various SME issues handled during the inspection period.
Key Points
- Adjudication Order No. Order/BS/LS/2025-26/31698 issued under Section 15 I of SEBI Act, 1992
- Noticee: Finshore Management Services Ltd (PAN: AABCF8557F)
- Registration Number: INM000012185 (Merchant Banker)
- Registered Office: Anandlok, 2nd Floor, Block-A, Room No.207, 227, A.J.C Bose Road, Kolkata, West Bengal-700020
- Inspection Period: April 1, 2021 to April 30, 2023
- Inspection Date: May 25-26, 2023
- Adjudicating Officer appointed on February 29, 2024
- Show Cause Notice issued on March 28, 2024 (No. SEBI/EAD-1/BS/12475/1/2024)
- Noticee submitted reply on April 25, 2024
Regulatory Violations
Alleged Violations:
Regulation 245(3) of SEBI (ICDR) Regulations, 2018 - Violations related to due diligence requirements for SME issues
Regulation 13 read with Clause 3, 4 and 6 of Code of Conduct for Merchant Bankers under Schedule III of SEBI (Merchant Bankers) Regulations, 1992 - Violations of professional conduct standards including:
- Clause 3: General conduct requirements
- Clause 4: Due diligence obligations
- Clause 6: Disclosure and transparency requirements
Compliance Requirements
- Merchant Bankers must exercise adequate due diligence in all SME issues they manage
- Strict adherence to SEBI (ICDR) Regulations, 2018 requirements
- Compliance with Code of Conduct specified in Schedule III of Merchant Bankers Regulations
- Timely response to inspection findings and queries from SEBI
- Maintenance of proper documentation and records for all transactions handled
Important Dates
- Inspection Period: April 1, 2021 to April 30, 2023
- Inspection Conducted: May 25-26, 2023
- Inspection Findings Communicated: August 12, 2023
- Noticee’s Initial Reply: August 22, 2023
- Subsequent Replies: September 15, 2023; October 26, 2023; October 31, 2023; November 3, 2023
- Adjudicating Officer Appointed: February 29, 2024
- Show Cause Notice Issued: March 28, 2024
- Reply to SCN: April 25, 2024
Impact Assessment
Market Impact: Medium - This order reinforces SEBI’s oversight of Merchant Bankers and their role in SME capital raising. It serves as a warning to other intermediaries about the importance of due diligence in SME issues.
Regulatory Impact: The action demonstrates SEBI’s continued focus on ensuring proper conduct by market intermediaries, particularly in the SME segment where investor protection is critical. The violations related to due diligence standards highlight the regulator’s emphasis on quality gatekeeping by merchant bankers.
Industry Impact: Other Merchant Bankers handling SME issues should review their compliance frameworks and due diligence processes to ensure adherence to SEBI (ICDR) Regulations and the Code of Conduct. The order serves as a compliance precedent for the intermediary sector.
Penalty Proceedings: The matter is under adjudication under Section 15HB of SEBI Act, 1992, which provides for monetary penalties. The final outcome and quantum of penalty will be determined after considering the Noticee’s submissions and conducting a full inquiry.
Impact Justification
Adjudication order against registered Merchant Banker for regulatory violations. Medium impact as it affects one intermediary and serves as compliance precedent for other merchant bankers handling SME issues.