SEBI Proposes Overhaul of Settlement Mechanism Through Draft Settlement Regulations, 2026

Securities and Exchange Board of India, Consultation Paper on the Draft SEBI (Settlement of Proceedings) Regulations, 2026, August 14, 2026

What happened

The Securities and Exchange Board of India (“SEBI”) released a consultation paper proposing the draft SEBI (Settlement of Proceedings) Regulations, 2026 (“Draft Regulations”), intended to replace the SEBI (Settlement Proceedings) Regulations, 2018 (“2018 Regulations”).

Background

SEBI’s settlement mechanism traces its origins to a circular dated April 20, 2007, and was subsequently placed on a dedicated regulatory footing through regulations issued in 2014 and then 2018. SEBI’s consultation paper recorded that settlement collections fell to ₹109.8 crore in FY26 from ₹798.9 crore in FY25, with settlement applications declining from 703 to 439 over the same period. SEBI also found, based on a study of settlement applications filed over the preceding two years, excluding outliers, that settlement amounts proposed in cases where settlement was not ultimately reached and which subsequently resulted in adjudicated penalties averaged roughly eight times the penalty finally imposed.

Key proposed changes

The Draft Regulations proposed a revised settlement-amount formula linked to the minimum statutory penalty, the stage of proceedings, prior regulatory action, the category and gravity of the violation, and aggravating and mitigating factors, with SEBI estimating that the revised methodology could reduce the current eight-times differential to approximately four times. The proposed framework also contemplated separate treatment of unlawful gains and investor losses, with such amounts to be addressed through appropriate restitution, disgorgement or other settlement terms rather than forming part of the core settlement calculation.

The Draft Regulations further proposed allowing settlement applications to be made or re-filed at later stages of proceedings, including in matters pending before the Securities Appellate Tribunal (“SAT”) and the Supreme Court, subject to an additional settlement amount in specified circumstances. The proposed framework also introduced a fast-track settlement route for specified violations and matters involving settlement amounts of up to ₹10 lakh, while reducing the additional charges applicable to certain re-filed settlement applications.

Comment window: Comments on the consultation paper and the Draft Regulations were invited until September 4, 2026.

Why it mattered

If notified, the revised framework would materially change how settlement amounts are calculated and would provide greater flexibility for settlement at later stages of enforcement proceedings, including in matters already before SAT or the Supreme Court. The proposed changes would also introduce a more streamlined route for specified smaller matters, representing a significant proposed departure from the narrower settlement framework presently available under the 2018 Regulations.

Source: Securities and Exchange Board of India, Consultation Paper on Review of the SEBI (Settlement Proceedings) Regulations, 2018 and the Draft SEBI (Settlement of Proceedings) Regulations, 2026, dated August 14, 2026.

Last Updated on 8 September, 2026