The Securities and Exchange Board of India (SEBI) has introduced a fresh set of rules aimed at making the regulatory framework for securities market violations simpler and more transparent. The changes cover how settlement amounts are calculated, how certain cases can be resolved faster and what companies may need to do to settle regulatory proceedings. The new framework also changes the treatment of wrongful gains and introduces separate routes for fast-track settlements.
The broader objective of the Settlement Regulations, 2026, is to simplify the settlement framework and reduce the scope for inconsistent or unpredictable outcomes.
Here are the key details of SEBI’s Settlement Regulations, 2026, and the changes you need to know.
1. SEBI revises the formula for calculating settlement amounts
Under the new framework, the settlement amount will be calculated using a base amount linked to the minimum penalty prescribed for the relevant violation under securities laws.
This base amount will then be adjusted according to several factors, including the stage of proceedings, regulatory action, the gravity of the violation, aggravating and mitigating circumstances, and legal costs.
The revised formula is intended to bring greater consistency to settlement calculations. By specifying the factors that influence the amount, SEBI aims to make the process easier to understand and more predictable for entities seeking to settle regulatory proceedings.
However, the final settlement amount will continue to depend on the circumstances of the case and the applicable regulatory framework.
2. Wrongful gains and investor losses will be calculated separately
One of the key changes is the separate treatment of wrongful gains, losses avoided and losses caused to investors.
Under the earlier approach described in the notification, such amounts could be counted while calculating settlement terms, potentially resulting in double counting. The new framework removes this overlap.
SEBI has clarified that wrongful gains, losses avoided or losses caused to investors will not be included while determining the base settlement amount. Where these amounts can be quantified, they will instead be disgorged separately. This is an important change in how the overall financial terms of a settlement will be structured.
3. Settlement terms will have three components
The new regulations specify three components of settlement terms:
– Settlement amount: The amount calculated under the revised formula.
– Disgorgement: Recovery of wrongful gains, losses avoided or losses caused to investors, wherever applicable and quantified.
– Remedial and regulatory terms (RRT): Measures that the entity must undertake as part of the settlement.
The third component was previously referred to as non-monetary terms. Its new name, remedial and regulatory terms, reflects its role in addressing the regulatory concerns arising from a violation.
4. Cases involving settlement amounts of up to ₹10 lakh get a fast-track route
The regulations introduce a monetary threshold-based fast-track settlement mechanism for cases where the settlement amount does not exceed ₹10 lakh.
Under this route, eligible cases will move directly from the internal committee to a panel of SEBI’s whole-time members. The provision is aimed at speeding up the resolution of cases involving relatively smaller settlement amounts by shortening the approval process.
The ₹10 lakh threshold relates to the settlement amount under this route. It should not be interpreted as a blanket exemption from securities laws or as an automatic right to settle every violation below that amount. The fast-track mechanism operates within the framework prescribed by SEBI.
5. A separate fast-track route will cover specified violations
The regulations also establish a violation-based fast-track settlement mechanism, separate from the monetary threshold-based route. Under this process, SEBI will issue a notice giving the concerned entity an opportunity to settle the matter by paying the amount specified in the notice.
Once the settlement amount has been paid, a panel of SEBI members will pass the settlement order. This route is based on the nature of the violation rather than solely on the size of the settlement amount. The framework also refers to certain disclosure-related violations in the context of fast-track settlements.
The two routes are designed to facilitate quicker resolution of eligible cases, although the applicable process will depend on the category of the violation and the relevant regulatory requirements.
6. Misrepresentation of financial statements and diversion of funds can be settled
The new regulations also provide for the settlement of cases involving misrepresentation of financial statements or diversion of funds, subject to appropriate remedial and regulatory measures. These measures may include making the necessary disclosures and bringing diverted funds back.
The provision establishes that such cases may be considered for settlement, but the process is subject to the prescribed conditions and safeguards. Settlement would therefore not simply mean paying an amount and closing the matter without addressing the underlying concerns. The remedial requirements are intended to ensure that the settlement process also addresses relevant regulatory issues arising from the conduct in question.
The two fast-track mechanisms are intended to speed up eligible cases, particularly those involving smaller settlement amounts or specified categories of violations. At the same time, remedial and regulatory terms preserve the ability to require corrective action.
What the new SEBI rules mean
The new framework changes both the calculation of settlement amounts and the procedure for resolving eligible regulatory cases. Its key features are a revised formula linked to minimum statutory penalties, separate disgorgement of quantified wrongful gains or losses, and fast-track mechanisms based on monetary thresholds and the nature of violations.
For companies and other entities facing securities law proceedings, the applicable settlement terms will depend on the specific violation and the conditions prescribed under the regulations. The new rules aim to make the process more efficient without removing the requirement to address the consequences of regulatory breaches.
Disclaimer: This story is for educational purposes only. Please consult with an investment advisor before making any investment decisions.
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