Securities and Exchange Board of India (Vault Managers) Regulations, 2021

Jan 03, 2022 | by TeamLease RegTech Legal Research Team

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Secretarial ComplianceThe Securities and Exchange Board of India (SEBI) on December 31, 2021 has issued the Securities and Exchange Board of India (Vault Managers) Regulations, 2021.

Following are the most important provisions of the regulations:

⦁Application for registration.

(1)Any person intending to carry on the business as a Vault Manager on or after the commencement of these regulations shall make an application to the Board for grant of a certificate of registration. (2) An application for grant of a certificate under sub-regulation (1) shall be made in Form A of the First Schedule and shall be accompanied by a non-refundable application fee in the manner as specified in the Second Schedule.

⦁Eligibility criteria

 For the purpose of grant of certificate of registration, the applicant shall fulfil the following criteria, namely:

(a) The applicant shall be a body corporate incorporated in India.

(b) The applicant shall have the minimum net worth of fifty crores rupees.

Explanation─ For the purposes of this regulation, the expression "net worth" shall have the same meaning as assigned to it under the Companies Act, 2013.

(c) The applicant shall furnish refundable Financial Security Deposit as may be specified by the Board.

(d) The applicant shall have the infrastructure as specified by the Board for safe deposit, storage and withdrawal of gold.

(e) The applicant shall have adequate insurance to cover losses as may be specified by the Board.

(f) The applicant shall have a Standard Operating Procedure (SOP) in respect of all the recognized vaults which shall specify the following:

i. Procedures for deposit and withdrawal of gold;

ii. Procedures for facilitating assaying of gold, wherever required;

iii. Maintenance of details of persons appointed by the Vault Manager for creating the Electronic Gold Receipt;

iv. Know Your Depositor requirements;

v. Security policy for ensuring the safety of gold including from theft or burglary;

vi. Procedure for dealing with losses including those caused due to theft, fire, burglary, fraud, negligence as well as other force majeure events;

vii. Procedure for creation of Electronic Gold Receipt;

viii. Procedure for maintenance of record;

ix. Procedure for periodic reconciliation of physical gold with the records maintained by it and with the records of the Depository;

x. Grievance redressal procedures;

xi. Maintenance of adequate infrastructure, office space, technology and computer systems capability; and

xii. Any other criteria as may be specified by the Board.

⦁Furnishing of information, clarification and personal representation

(1)The Board may require the applicant to furnish such other information or clarification regarding matters relevant to the activities of a Vault Manager for the purpose of processing of the application. (2) The applicant or its authorized representative shall, if so required, appear before the Board for personal representation, in connection with the grant of certificate.

⦁Surrender of registration

(1)A Vault Manager shall make an application to the Board in terms of Chapter V of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 to surrender the certificate of registration along with information that would satisfy the Board that: (a) the vaults have no pending obligations for physical delivery of gold; and (b) all disputes with respect to the gold deposited with it for the purpose of providing vaulting services as specified in these regulations have been satisfactorily resolved. (2) After surrender of registration, the financial security deposit furnished by the Vault Manager shall be refunded as per the procedure specified by the Board.

⦁General obligations

(1) The Vault Manager shall be responsible for taking the deposit of the gold in the manner specified in Chapter IV of these regulations.

(2) The gold deposited with the Vault Manager shall be in form and manner as specified by the stock exchange.

(3) The Vault Manager shall store the gold only in recognized vaults.

(4) The Vault Manager shall ensure the quality specifications of the gold at the time of deposit as per the gold standard.

(5) The Vault Manager shall create Electronic Gold Receipt in accordance with regulation 18.

(6) The Vault Manager shall not create an Electronic Gold Receipt without underlying physical gold.

(7) The Vault Manager shall maintain records of all transactions or operations pertaining to the recognized vault(s).

(8) The Vault Manager shall have appropriate safekeeping measures, as may be specified by the Board, to ensure that deposits, records and documents are protected at all times.

(9) The Vault Manager shall have Data Recovery System in place to prevent loss or damage of electronic records.

(10) The Vault Manager shall take necessary steps to maintain the quality and quantity of gold stored in the recognised vault(s).

(11) The Vault Manager shall have adequate internal controls to prevent any manipulative activity.

(12) The Vault Manager shall devise procedures for periodic reconciliation of physical gold with the corresponding record of Electronic Gold Receipts maintained by it and the depositories.

(13) In case of any discrepancy between electronic records of the depository and physical gold with the Vault Manager, the Vault Manager shall ensure to resolve the same expeditiously, failing which the Vault Manager shall be liable for such discrepancy.

(14) The Vault Manager shall deliver the gold, to the beneficial owner of Electronic Gold Receipt, after receiving specific instructions from the Depository.

(15) The Vault Manager shall ensure that while withdrawing gold, the Beneficial Owner acknowledges the receipt of the gold in the form and manner as specified by the Vault Manager.

(16) The Vault Manager shall not differentiate between any of the depositors for providing vaulting services.

(17) The Vault Manager shall not create Electronic Gold Receipt in its own name with respect to the gold stored in its recognized vaults.

(18) The Vault Manager shall not sell, remove, dispose or create any interest, including by way of pledge or hypothecation, in the gold deposited in the vault(s) for the creation of Electronic Gold Receipt, except in such manner as may be specified by the Board.

(19) The Vault Manager shall have adequate mechanisms for the purposes of reviewing, monitoring and evaluating the vault’s systems, procedures and safeguards.

(20) The Vault Manager shall ensure delivery of gold to the beneficial owner as per the gold standard.

(21) The Vault Manager shall clearly disclose all charges related to its services on its website.

(22) The Vault Manager shall submit periodic reports to the Board in such form and manner, including in electronic form, as may be specified by the Board in this behalf.

⦁Obligations of the Vault Managers on inspection

(1) It shall be the duty of the Vault Manager whose affairs are being inspected and of every director, officer and employee thereof to produce to the inspecting officer, such books of accounts, records and other documents in its custody or control and furnish him with such statements and information relating to his activities as Vault Manager and within such reasonable period as the inspecting officer may require.

(2) The Vault Manager shall allow the inspecting officer to have reasonable access to the premises occupied by it or by any other person on its behalf and also extend reasonable facility for examining the books, records, documents and computer data in the possession of the Vault Manager or such other person and also provide copies of documents or other materials which in the opinion of the inspecting officer are relevant for the purposes of the inspection.

(3) During the course of inspection, the inspecting officer shall be entitled to examine or to record the statements of any director, officer or employee of the Vault Manager.

(4) It shall be the duty of every director, officer or employee of the Vault Manager to provide the inspecting officer all assistance in connection with the inspection as may be reasonably required.

⦁Liability for action in case of default

 A Vault Manager who— (a) contravenes any of the provisions of the Act, the rules framed thereunder or these regulations; 

(b) fails to furnish any information relating to its activity as Vault Manager as required by the Board; 

(c) furnishes false and misleading information to the Board;

 (d) does not submit reports as required by the Board;

 (e) does not co-operate in any enquiry or inspection conducted by the Board.

(f) fails to update its systems and procedures as recommended by the Board;

 (g) fails to resolve the complaints of complainants or fails to give a satisfactory reply to the Board in this behalf;

 (h) makes a breach of the Code of Conduct specified in the Third Schedule; or

 (i) fails to pay the fees in accordance with these regulations; shall be dealt with in the manner provided under the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.

[Notification No. SEBI/LAD-NRO/GN/2021/61]


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